Tesla ‘is the only investment’ in electric vehicles

Tesla ‘is the only investment’ in electric vehicles

  • Tesla’s aggressive price cuts and legacy automakers scaling back EV ambitions were among the major EV themes of 2023.
  • Tesla is best positioned to capture the surge in EV adoption in 202 and Rivian will emerge strong runner-up, says Future Fund’s Gary Black.

Electric vehicle stocks came under significant selling pressure in 2023 as conditions remained inclement for production as well demand. That said, shares of market leader Tesla, Inc. rode on a strong first-half performance and doubled during the year.

Here are the key themes that dominated EV space during the year:

Tesla Goes Aggressive With Pricing: With the Fed continuing to take interest rate higher, Tesla smelled trouble and opted to go with the strategy of deep price cutting for most of the first-half of the year. The move produced a ”sugary high” for the stock, which rallied through the first half of the year. Demand, however, proved to be inelastic, not increasing by much.

However, these steep price reductions forced competing startups to a critical point where they had to choose between matching the cuts and exacerbating their already substantial losses, or maintaining their prices and risking a significant decline in revenue.

For Tesla, the price cuts turned out to be a margin-squeezing exercise. The company’s auto gross margin, excluding regulatory credits – aka core auto margin, continued to contract this year. From just under 25% in the fourth quarter of 2022, this metric slid to 16.3% in the third quarter of 2023. As a consequence, Tesla reported a double miss in the quarter.

Rivian’s Pushes Ahead From Startup Crowd: Other than Tesla, the only U.S. electric vehicle stock to end in the green was Rivian Automotive, Inc.

When the rest of the startup ecosystem was cutting production amid difficulty in ramp-up and waning demand, Rivian maintained its production forecast for the year, in fact nudging it up slightly in the back-end of the year. The company now expects full-year production of 54,000 units.

The Irvine, California-based company also managed to keep costs in check, and in early November, it narrowed its full-year adjusted EBITDA loss guidance to $4 billion. Rivian ended the third quarter with $9.13 billion in cash, cash-equivalents and short-term investments.

Slowing EV Adoption: Despite regulatory mandates put in place by some governments across the globe for transitioning to EVs, the industry faced a setback in 2023. Global EV adoption grew, but at a slower pace in 2023 amid a lack of affordability and charging infrastructure bottlenecks.

Looking ahead, the industry is expected to see a further slowdown in 2024. Investment bank Argus expects battery EV and plug-in hybrid sales growth in the U.S. to slow from 50% in 2023 to 37% in the new year, to reach 1.94 million units.

Pinpointing the reasons for the slackness seen in 2023, Gary Black, the co-founder and managing partner of Future Fund, attributed it to a combination of higher interest rates, challenges in scaling up production, and consumers’ range anxiety impacting the market.

Black, however, is optimistic about the outlook. He expects U.S. EV adoption rising from 12% currently to 20% in 2024, increasing further to 60% by 2030. This growth is projected to occur as consumers become more familiar with the ease of charging EVs and as concerns about range anxiety diminish.

EV Companies Make Beeline To Tesla Charging: Reflecting on range anxiety, it’s notable that this year both pure-play EV makers as well as legacy automakers warmed up to Tesla’s North American Charging Standard, as they began to see NACS adoption as a win-win proposition. Rivian, Lucid Group, Inc. , General Motors Corp. and Ford Motor Co. all joined the bandwagon to make life easier for their customers.

The count of adopters for NACS rose dramatically this year, from only one to 28, a change analysts believe could be a significant source of income for Tesla.

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