There’s a war in the U.S.
It was started by Elon Musk (one of many he’s currently involved in).
If Gustave Flaubert is correct and, “You can calculate the worth of a man by the number of his enemies…” Then Elon may be worth even more than merely the title of world’s wealthiest person.
But the war he started is a race to the bottom. One that will test who can cut the most and survive.
There are billions of dollars on the line. Tens of thousands of jobs. Footholds and fortunes to be one for the next decade.
And over the next several quarters, we’ll watch as the battle plays out in real time.
Unfortunately, the winners and losers will be everyday, hard-working Americans.
And it’s going to get worse before it gets better…
Where are the EVs? Not Here
In 2020, the global automotive market buckled.
Thanks to the pandemic and lockdowns, sales tumbled 14.8%... falling well below the annual average of the previous 10 years.
Even more striking, the collapse in automotive sales in 2020 was even larger than what was seen during the financial crisis from 2007 to 2009.
But one segment of vehicles bucked the trend. Electric vehicle (EV) sales raced higher.
In fact, worldwide, EV sales soared 41% to record highs!
But digging into the data, we spy something very telling. During the first six months of 2020, EV sales were 15% below 2019’s numbers. That means the entire boom took place during the second half of the year.
Why?
Well, the European Union started 2020 by introducing new emissions standards. These limited passenger cars to 95 grams of carbon dioxide per kilometer. But this is part of a policy the EU began back in 2008. And each time they’ve been tightened, EV sales surge in response.
So, during the first half of 2020, when global EV sales were down 15% compared with 2019’s, EV sales in Europe were up 55%.
But as pandemic lockdowns were eased, EV sales continued to gain speed. And by the end of the year, European EV sales had more than doubled. That meant 1 out of every 10 cars on European roads was an EV.
And those sales are still speeding along.
The outlook for green technology is so rosy, the International Energy Agency says it expects EVs to represent 60% of vehicles sold by 2030.
In 2022, sales of EVs topped $388 billion. That helped tip total sales to date of EVs past $1 trillion.
And everyone is racing to snag their piece of the pie, from Fisker (FSR) and Ford (F) to General Motors (GM), Lucid (LCID), Nio (NIO), Tesla (TSLA), Rivian (RIVN), Workhorse Group (WKSH), and more.
But there’s a fly in the ointment… And it comes via the second-largest EV market in the world.
The Only Victor in This War
In April, Tesla announced its sixth price cut in a year.
And for good reason.
The statistics are sobering for the green police. Only two out of every 10 Americans say their next car will “very likely” be an EV.
That’s in stark contrast to what’s seen elsewhere around the world, particularly Europe. There, two-thirds of consumers report their next car will be an EV. And sales have already skyrocketed.
For example, in Norway, EVs currently account for 86% of new vehicle sales. And in Iceland, 72% of new cars sold are EVs.
In China, the largest EV market in the world, EVs represent 16% of new automobile sales, as well as 59% of all EVs sold globally.
Each of these exceed adoption rates in the U.S. by a wide margin.
Keep in mind, the Biden Administration tried to mimic the EU. The Inflation Reduction Act provides a $7,500 tax credit for EVs.
Not to mention, the strict new pollution limits from the bill are intended to propel EV sales to 67% of the market by 2032.
That’s a Herculean effort, as EVs account for a mere 5% of new vehicle sales in the U.S. and hold just 7% of the market.
The American EV sector is plagued by a litany of issues.
One of the biggest is cost… which is why Tesla (the American market leader) has slashed prices to try and spur demand.
Now, Consumer Price Index (CPI) for June showed inflation slowed to 3%... A big reason for that is used car prices have suffered double-digit percentage drops in price. Used car prices are a significant component to the CPI calculation. But EV prices have fallen even further, down more than 20%.
Yet, EV makers aren’t moving. Manufacturers are sitting on more than 90 days’ worth of unsold stock. And inventories are up 74% from a year ago.
That’s the perfect recipe for more price cuts (which dings profitability), as well as layoffs at plants.
Even worse for the margin squeeze, there are more than 90 new models of EVs hitting the U.S. market between now and 2026.
It’s been a wild year for EV stocks… Tesla is leader of the pack, up more than 120% thanks to better-than-expected global deliveries. That’s triple the performance of Ford, General Motors, and Rivian.
Meanwhile, Fisker, Lucid, Nio, and Workhorse are underperforming the broader markets.
A race to the bottom only benefits market leaders. The U.S. adoption of EVs may be an outlier Elon Musk doesn’t want, well behind the global trend. But with the price war underway (and the one that’s coming), Tesla is best positioned to walk away the victor.
Note: Tesla is one of the “Magnificent 7” - responsible for much of 2023’s gains. But a few hours from now, the story may rapidly change with the Nasdaq’s “Great Rebalancing.” Well, Money Morning’s Garrett Baldwin is hot on the case, going LIVE from FreedomFest Friday morning to show investors what this move means for the markets and their portfolios. It’s an event you can’t afford to miss. So click here to set a calendar reminder. There’s no charge to attend online.
Here’s to high returns,
Matthew
