EV: should investors be worried about the current slowdown?
For the second instalment of the climate solutions series, Net Zero Investor examines whether the current slowdown in the electric vehicle (EV) industry has caused investors to turn their heads towards other opportunities
This month, Tesla, one of Europe's largest sellers of battery-powered electric vehicles, saw its profits and sales plummet. Once the envy of the automotive industry, the company's profits are now at their lowest in six years. From January through March, revenue fell 9% to $21.3 billion, down from $23.3 billion during the same period last year.
This comes as carmakers globally have been stepping back from EV production. US carmaker Ford has delayed expansions of their EV range, favouring hybrid models, with European carmaker Mercedes Benz also pushing back EV plans.
Whilst Japanese carmaker Toyota has become one of the most vocal critics of battery powered vehicles, it is now betting on petrol-electric hybrid technology instead.
How are investors dealing with the recent EV slowdown and what does this mean for future investment in the climate solution?
Seth Goldstein, an equity strategist at Morningstar, contends that despite the "near-term slowdown," long-term investors should remain committed to the electric vehicle (EV) transition, which he considers "crucial" for global decarbonisation
“Many technology transitions, including EVs, do not have a smooth adoption curve. There are periods of rapid adoption and periods of slower adoption. While EVs are in a period of slower adoption, sales are still growing globally,” Goldstein tells Net Zero Investor.
He argues that the recent slowdown is only due to automakers wanting to ensure their vehicles are profitable, with the current European market being “fairly saturated” in the luxury auto market.
While the narrative on carmakers’ taking a step back on EV rollout clearly exists, it’s important to remember that the 70% of EVs sold in 2023 were in China
Transition ‘revolution’
Many investors, including $462.8bn CalPERS have continued to invest in the asset, with the Californian pension fund buying stakes in electric vehicle startup Rivan Automotive in 2022 alongside 6 other asset owners.
With a target to reach net zero emissions by 2050, CalPERS has pledged to more than double its investments in climate solutions to $100bn by the end of 2030. Talking to Net Zero Investor, the pension fund stated that it doesn’t comment on individual holdings but stressed that it believes that the transition to a low-carbon economy and investing in climate solutions such as EV “represents the largest economic revolution of our time”.
Alongside CalPERS, Canadian asset owners CDPQ Investment Management Corporation of Ontario, Canada Pension Plan Investment Board, and OMERS have all committed to electric vehicle battery developer Northvolt in Sweden.
Investment by funds also expands to EV infrastructure, with Dutch $14bn PGGM becoming the largest stakeholder in EU fast charging network Electra in 2024.
Global outlook
Yunli Liu, analyst of thematic equity team at Ninety One, highlights that when investors assess their EV holdings, it is important to consider the global outlook for the climate solution. “While the narrative on carmakers’ taking a step back on EV rollout clearly exists, it’s important to remember that the 70% of EVs sold in 2023 were in China,” she tells Net Zero Investor.
In Thailand for example, EV penetration hit 15% in March this year, with the market in Bazil also growing 10% “year on year”, she highlights.
According to the International Energy Agency’s (IEA’s) most recent report on EVs, in China, the number of electric car registrations reached 8.1m in 2023, increasing by 35% relative to 2022. The report also predicts that almost 1 in 3 cars on the roads in China by 2030 is set to be electric, whilst this figure will be almost 1 in 5 in both the US and EU.
“The electrification trend in the largest EV market in the world has not reversed,” Liu argues. “The upcoming elections in Europe and America will have significant impact on mid-term EV adoption targets in those regions, but again, EVs are not just about Europe and the US.
“In China, EVs are no longer subsidy-driven as total cost of ownership is way more attractive for EVs sold in China for various reasons, including charging infrastructure, affordability of EV models and also key components like batteries,” she states.
As more affordable models are launched and fast chargers are built, we think EV adoption will grow rapidly in the second half of the decade
Affordability
The IEA’s report, which was published last week, also highlights that a rapid transition to EVs “will require bringing to market more affordable models”, with it estimating that more than 60% of electric cars sold in 2023 in China “were already cheaper than their average combustion engine equivalent”.
On the other hand, in the US and Europe, electric cars remain 10% to 50% more expensive than combustion engine equivalents, the IEA’s report stated. It adds that the “pace at which electric car sales pick up in emerging and developing economies outside China will determine their global success”.
“Right now, in the two key auto markets of Europe and the US, there are not many EVs in the affordable vehicle segments that offer a range of at least 300 miles. There is also a lack of charging infrastructure along highways.
“This leaves consumers hesitant to buy EVs even if they could afford one. However, as more affordable models are launched and fast chargers are built, we think EV adoption will grow rapidly in the second half of the decade,” Goldstein adds.
This argument seemed to come true last week when Tesla stock skyrocketed 13% following its announcement of a speedier launch of “more affordable” models as early as late 2024.
This move by Tesla will have a “positive impact on the adoption of EVs globally”, Liu argues.
James Frith, head of Volta Energy Technologies European Operations, tells Net Zero Investor that “in the longer-term automakers will switch to BEVs and consumers will buy them, we just need to reduce their cost of production and therefore price”.
‘Robust’ growth
Alongside this, the IEA’s report outlines that despite the near-term challenges in some markets growth in EV remains “robust”, being 18% of all cars sold in 2023.
Jonathan Carrier, cofounder/CEO of battery energy storage provider Allye, remarked that the “death of EV is a little premature”.
“What we are talking about is a slightly lower gradient in the uptake of EVs. All the indicators of increased growth are there.
“From superior battery technology, cheaper vehicles and a more reliable and widespread charging network, the industry ecosystem is pushing this forward,” he told Net Zero Investor.
