This is what I was trying to post the other day. For those...

This is what I was trying to post the other day. For those people interested. Hope it works.


Quote of the week

“The overarching goal of Tesla is to help reduce carbon emissions and that means low cost and high volume.

We will also serve as an example to the auto industry, proving that the technology really works and customers want to buy electric vehicles.”

Elon Musk

The EV Demand Slump

The EV market is facing a slowdown in demand. While sales are at record levels, growth has slowed rapidly in the last year.

The response from automakers suggests they see this slowdown lasting more than a few months. Those that can are cutting prices, and the biggest companies are scaling back their plans to expand capacity.

EV YoY Sales Growth in US and EU - FT.com

It appears three major problems are creating uncertainty for the EV industry:

Firstly, high-interest rate car loans are 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 now expanding 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 the full article to 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.

The Insight: Focus on Long Term Catalysts

While there is evidence of a slowdown in the demand for EV's in the short term, it's crucial to think 5-10 years out and see if the longer term trend will persist.

It's worthwhile to know the long term catalysts of why you own (or want to own) a stock, not only so you know what to monitor as things unfold, but also so you can estimate a valuation for the stock. We'll give you some example EV catalysts below.

To help with this, we recently launched Narratives, and you'll soon be able to create and publish your own narratives!

Check out the video below for more details!

To create your own EV narrative, there are a few key questions to ask yourself that can help shape your catalysts:

Do you think emissions targets will dictate EV demand?

The Paris Agreement outlined a strict set of emissions guidelines to help the world achieve Net Zero by 2050. Will governments push to ban the sales of internal combustion engines (ICEs) to help speed up this process? To be on target to reach our 2050 goal, 75-95% of new car sales in 2030 would have to be EVs. Is this reasonable?

Do you think that EV technology will become cheap enough to compete with ICEs on price?

One obstacle to greater EV penetration is that petrol-powered vehicles are cheaper to buy outright and can generally provide owners with improved range and operation at a variety of temperatures. Could EV technology improve to the point where ICEs are completely obsolete?

️ Do you think we have the grid infrastructure to support a massive increase in the number of electric vehicles?

A common criticism of the electrification of vehicles is that we don’t currently have the grid infrastructure to support millions of cars charging each night. Do you believe there are alternative solutions or that we’ll overhaul our current infrastructure?

Do we have the resources to support a massive spike in EV demand?

The production of EVs requires large volumes of Lithium, Nickel, Cobalt, Copper and various rare earth metals, all of which could become supply-limited should EV demand pick up. Do you think there are enough mineral resources to support the expected demand for EVs?

Once you feel comfortable answering these questions, you’ll begin to see what side of the coin you’re on.

If you found yourself answering ‘Yes’ to a lot of these questions, you’re most likely on the bullish end of the spectrum when it comes to EVs, and checking out some of the big EV companies and the industries that support them might be of interest to you.

If you found yourself answering ‘No’ to most of these questions. You’re most likely bearish on the EV market and could perhaps look to research alternatives like hydrogen-powered vehicles!

Remember, if you have your own narrative you’d like to publish, on any automaker or ANY other stock for that matter, we’d love to hear from you! Simply click “Create Narrative” at the top of the narrative tile on the company report page to register your interest!