What Tesla’s troubles tell us about the EV industry
Tesla’s disastrous earnings report this week has sparked a sell-off of the world’s largest electric vehicle manufacturer and widespread skepticism about the state of the EV industry as a whole.
“This is a fork in the road, not just for Tesla, but for the entire industry,” said Wedbush Securities analyst Dan Ives in an interview on Wednesday.
Tesla’s stock sold off sharply this week after its earnings report showed the company was on track for its slowest quarter since 2022.
Elon Musk’s company blamed the lower production and deliveries at least in part on what it called temporary logistical issues.
Those temporary factors include shipping disruptions in the Red Sea and an arson attack on its new German battery plant.
Analysts were expecting softer numbers, but Ives called it “an unmitigated disaster.”
Tesla stock has fallen more than 33 per cent this year. Back in January of 2022 it was trading for more than $400 US. By the beginning of April its stock was worth a mere $167 US.
Tesla’s bad news often acts as a sort of proxy for how people feel about the broader state of the EV market.
On that front, recent headlines have not been encouraging.
EV market in ‘limbo’
In the United States, car-rental giant Hertz is selling about 20,000 electric vehicles due to higher expenses related to collision and damage, and replacing them with cars using internal combustion engines.
In October, General Motors announced it would cut production of EVs, citing slowing demand.
In January, Ford slashed production of its electric pickup truck in half.
“It’s true, the pace of EV growth has slowed, which has created some uncertainty. We will build to demand,” GM’s CEO Mary Barra said on an earnings call.
But at the same time, Barra said she was “encouraged” by industry forecasts that showed EV sales in the U.S. were set to rise at least 10 per cent this year.
Longtime automotive industry analyst Joe McCabe says the EV market is in a sort of “limbo” right now.
He says growth is still in the forecast, but that significant challenges stand in the way of automakers taking advantage of that growth.
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He says there were eight different kinds of electric vehicles for sale in North America in 2020; this year, there are 53. But his company, Auto Forecast Solutions, says there is a wave of new choices coming to consumers in the next six years.
“We have 141 unique battery electric vehicles in our forecast in 2030 in North America alone. Same consumer, all saying, ‘Which one do I want?'” he said.
Right now, he says the EV market is still being dominated by early adopters. A broader market may exist, but to pull them in, electric vehicle manufacturers have to address some key challenges.
“There are many hurdles in EV adoption: there is cost, there is range, there is infrastructure and raw materials. They’re getting better, but they still exist,” McCabe told CBC News.
Add to all those concerns the recent spike in borrowing costs.
As interest rates soared, consumers were suddenly less interested in getting a newer vehicle.
“They go: no, I’m going to go buy a $40,000 internal combustion engine vehicle because my price now per month compared to COVID times is going to be $200 more for the same vehicle because the interest rates are up,” said MCabe
Growth potential
Still, by most forecasts, the broader EV market is set to grow. By some measures, it’s set to grow substantially.
The federal Liberal government is hoping to pass legislation requiring all new vehicles sold in Canada to be zero-emissions by 2035.
“So 12 years from now, 100 per cent of new vehicles sold would have to be electric vehicles. But people who have gas-powered engines would be able to continue using them past 2035; they just won’t be able to buy new ones,” Environment Minister Steven Guilbeault told CBC’s Power and Politics.
Other countries have seen the share of EVs sold soar in recent years.
But the bulk of global growth will come via mass production and adoption of EVs in China
The China Passenger Car Association says shipments of all electric and plug-in hybrid vehicles to dealers are projected to increase 25 per cent in 2024. Last year saw a 36 per cent increase.
Chinese electric vehicle manufacturer BYD has seen its total profits rise by more than 86 per cent year-over-year. The EV company is in a pitched battle with Tesla for top spot in terms of global EV market share.
Still, analysts say the EV market is going through an important test. And Ives says the electric vehicle industry needs Tesla.
“Clearly others could benefit from Tesla’s demise. But just like Apple is to the smartphone market and Meta is to social media, that’s what Tesla is to electric vehicles,” said Ives.
‘Fork in the road’
Even after this week’s disappointment, Ives has listed Tesla stock to “outperform” — meaning he predicts the company can and will turn things around. He says there’s a “Category 5 storm” ahead, but that’s why this week is such an important moment.
He says Tesla hasn’t had a new model in years, it still doesn’t advertise and, above all, it’s no longer the only game in town. Ives also says he believes Tesla CEO Elon Musk has plenty of ways to adjust to the changing market.
“I think there’s a long-term growth story here,” said Ives. “It’s a fork in the road where either they turn this around and this was a bad nightmare or there are darker days ahead.”
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