It appears three major problems are creating uncertainty for the EV industry:
- Firstly, high-interest rate car loansare adding to the already high price tag for electric vehicles.
- Secondly, EV volumes no longer reflect a niche market of early adopters. But electric vehicles are still ~30% more expensive than legacy vehicles, so prices need to drop further to make them affordable for a larger market.
- Lastly, with prices falling,potential buyers are concerned about the resale value of their vehicles, so some would-be buyers are searching for an EV in the used car market instead.
All of this makes for a very uncertain outlook. But it could also create opportunities for investors: ultimately vehicles need to be replaced at some point (unless it’s a Toyota Land Cruiser, those things are indestructible), and unless emissions targets are abandoned, those vehicles will likely have to be EVs.
However, rather than consumers upgrading to an EV when it would be “a nice to have”, they may only upgrade when it becomes a necessity - meaning slower purchase cycles.
The Next Phase for EVs
The FT pointed out that the market for EVs is nowexpanding from the early adopter phase to the mass market phase.
Any industry going through this change will face a new set of challenges. Early adopters like to own the latest technologies, even if it means paying a premium. Mass market consumers are more concerned with practicalities like price and in the case of EVs, driving range (read:range anxiety).
To make electric vehicles more affordable, companies need to achieve massive scale.
Tesla, BYD and some of the legacy automakers are on their way to achieving the level of scale required. For smaller companies though, that point may be further out on the horizon.
If you’re looking at smaller EV makers, an important question to ask is: Will they ever reach the scale where they can economically produce EVs, and if so, what efficiencies and economies of scale will the bigger automakers have by that time?
Economies of scale are a great competitive advantage to look out for.Those businesses that get there first, typically gain a significant edge over those that are further behind.
Check out thefull articleto see why analysts have wide ranging opinions on different EV makers, and why price targets and buy/hold/sell recommendations are not as valuable as reaching your own conclusion.
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