We bring you three charts this week! Challenges at Tesla (as well as the company’s stock price performance) has triggered a litany of opinions about the state of the electric vehicle transition. What follows is a partial response to some of the major assertions we hear regarding EV adoption.
Assertion #1: Tesla is the bellwether for the EV business
As the car manufacturer that sells the most electric vehicles and one of very few players that sells only electric vehicles, many investors use Tesla as shorthand for the overall EV market. But this is like saying that social media is in decline purely because Meta has fewer new subscribers to Facebook.
Source: IEA, Global EV Outlook 2024
Tesla may be selling less cars, but EV penetration - the share of total auto sales that is electric – continues to climb on an annual basis in the U.S and elsewhere. Porsche, Audi, Volvo, Mercedes, VW and BMW all reported that at least 10% of their total vehicle sales are now electric.
Just because Tesla may be struggling doesn’t mean the EV industry is going backward.
Assertion #2: Ideology will hold back EV adoption
EV sales tend to be lower in some Republican states. Or one could say that subsidies work: adoption of electric vehicles is highest in jurisdictions – that are historically Democrat – where subsidies are highest. In the U.S, this happens to be California. In Canada, it’s Quebec. In Europe, Norway. California and Quebec offer generous rebates (up to $7,500) and Norway waives sales taxes on EVs.
The correlation between subsidies and sales simply suggests that consumers are sensitive to price!
Assertion #3: EVs are for the rich
For now, yes. Much of Tesla’s sales troubles might stem from the fact that the manufacturer now genuinely has competition. Note in the chart below that the car brands that sell the most EVs as a percent of total brand sales are all considered luxury names. Car shoppers don’t have an easy time finding cheap EVs: according to the Kelley Blue Book, the average price paid in the U.S. in 2023 for a new EV was $50,789. In Q1 2024, there were only two vehicles under $40000: the Chevy Bolt and Nissan Leaf. In fact, Tesla is trying to address this; guidance that accompanied the recent Q1 earnings release noted plans to bring forward production of more affordable cars. Still, this won’t happen until 2025, thus doing very little to change the near-term sales dynamics.
Investors looking to go long the EV trade should concentrate their efforts in the luxury market (for now).
Assertion #4: Range Anxiety is an issue
It’s logical to believe that the first owners of ICE vehicles sometimes said, “it’s more practical to take the horse”. Surely, we’re in that transition phase now; in a recent survey 60% of the American public said that they had range anxiety when considering an EV purchase. We would agree that he charging infrastructure is still broadly insufficient. It took decades to get to the current ratio of around one gas pump for roughly every 200 vehicles, with a fueling station rarely more than 20km away. With an expected growth rate of well over 30% CAGR for charging infrastructure, this hurdle won’t be present forever.
Governments desires of speeding up the EV transition may have more luck investing in charging infrastructure than subsidizing vehicle purchase.
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