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Blue Planet Studio
The electric vehicle sector has been jolted in 2023 by the sinking realization that the Green Tidal Wave thesis of early 2022 is unlikely to play out as planned. Inflation and macroeconomic pressures have created a serious affordability issue for consumers that appears to be pushing out the adoption curve. Some forecasts now see EV sales plateauing over the next six months.
Investor sentiment on the sector is at a low amid devastating returns for EV players such as Faraday Future Intelligent Electric (FFIE) -95% year-to-date, Arrival (ARVL) -84%, Arcimoto (FUV) -80%, Volcon (VLCN) -84%, Canoo (GOEV) -77%, Blink Charging (BLNK) -75%, Workhorse Group (WKHS) -71%, ChargePoint Holdings (CHPT) -68%, Polestar Automotive Holding (PSNY) -57%, Cenntro Electric (CENN) -57%, Nikola (NKLA) -47%, Ayro (AYRO) -43%, VinFast Auto (VFS) -41%, Fisker (FSR) -37%, Lucid Group (LCID) -32%, and TuSimple (TSP) -27%. That list does not include companies like Lordstown Motors (OTC:RIDEQ) that restructured or Sonos Group (OTC:SEVCQ) that was delisted.
Meanwhile, Tesla (NASDAQ:TSLA) has been a 2023 winner with shares up more 70%. The EV juggernaut has not lost much market share, despite the rush of new competition across the globe. TSLA’s market share of the global BEV market was 19% through the end of September and its share of the U.S. BEV market was 56.1%. Both those marks are above where Tesla (TSLA) doubters warned the automaker would stand. Also working in the Austin company’s favor, Ford Motor (NYSE:F) and General Motors (NYSE:GM) have both pulled back from their aggressive EV production targets, and the new UAW contract will put even more financial pressure on the legacy players.
Chinese electric vehicle makers XPeng (XPEV) and Li Auto (LI) have also churned up big returns this year, while the biggest YTD winner in the sector is electric motorcycle seller LiveWire Group (LVWR), with its 90% year-to-date rally.
What does the road ahead look like for the electric vehicle sector? For startups, it is a battle of survival and reaching production levels that can put them in a break-even position. For major OEMs, caution appears to be the operating paradigm. Toyota (TM) lowered its EV sales forecast by nearly 40% and disclosed that it would lean into hybrids to avoid price competition in the EV market. As for Detroit, Morgan Stanley analyst Adam Jonas thinks it is clear that legacy OEMs will operate with a slower pace of electric vehicle investment and a more frugal level of spending due to the focus on capital discipline. That leads to the question of how can large OEMs be frugal if autos are a “scale business” where achieving low cost leadership will be deterministic to the success of the EV strategies. Morgan Stanley thinks an option for the legacy automakers is to pull the collaboration lever. General Motors (GM), Ford Motor (F), and Stellantis (STLA) could work with China, work with EV startups, work closely with each other, or even work with Tesla (TSLA) on a licensing or supply deal. That strategy would mark a reversal from the prior plan to copy Tesla (TSLA) through massive upfront proprietary investments in supply chain, unique manufacturing capabilities, ground-up software development, in-house battery sourcing, and downstream infrastructure. Of note, Tesla (TSLA) CEO Elon Musk said earlier in the year that the company was in talks with another major automaker about licensing full self-driving software. Rivian Automotive (NASDAQ:RIVN) is working to break free of its exclusivity partnership with Amazon (AMZN), which could set it up for a major partnership or new production deal. Some analysts think the aggressive moves by NIO (NIO) in Europe could be the precursor for a partnership there with a local player.
Outside of collaboration moves, another development that could boost the electric vehicle sector is that battery prices are expected to fall to $99 per kilowatt hour of storage capacity by 2025, which would mark a 40% decrease from 2022. Goldman Sachs estimates almost half of the decline will come from declining prices of EV raw materials such as lithium, nickel, and cobalt. Battery pack prices are forecast to fall by an average of 11% per year from 2023 to 2030 and potentially achieve cost parity with internal combustion engine vehicles around the middle of this decade on a total-cost-of-ownership basis. Of course, that would solve some affordability issues for consumers if it plays out.
Quant check: The automobile manufacturer stocks with the highest Seeking Alpha Quant Ratings are Toyota Motor (TM), Subaru (OTCPK:FUJHY), Li Auto (LI), Nissan Motor (OTCPK:NSANY), and BYD Company (OTCPK:BYDDF). The top rated auto supplier stocks are Modine Manufacturing (MOD), Adient (ADNT), and Holley (HLLY).
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