Will the electric car bubble deflate Tesla?
Has the electric car boom already come to an end? Demand slows, interest rates rise, and many companies – not just Tesla – may struggle to make ends meet
The great moment of electric cars, which made the fortune of many startups and pushed Tesla's valuation to around $650 billion, is already ending, writes Bloomberg .
TESLA'S DISAPPOINTING RESULTS
In short, demand for electric vehicles is waning. On October 18th, Tesla reported a very uninspiring profit, disappointing expectations on profits and sales: this is due to the current phase of high interest rates, which is reducing consumers' propensity to spend.
Even traditional car manufacturers, who are also focusing on electric mobility – for example General Motors, Mercedes-Benz and Honda Motor – have released less than enthusiastic statements.
WHAT THE CAR MANUFACTURERS SAY
Elon Musk, Tesla's CEO, blamed the poor results on rising interest rates; others think demand is the cause. General Motors said it will review electric vehicle targets as sales proceed slower than expected. Mercedes-Benz has instead defined as "brutal" and unsustainable – given the compression of profit margins – the so-called "price war", i.e. the cut in sales prices practiced by Tesla with the aim of conquering more market space.
WILL THE ELECTRIC CAR INDUSTRY COMPLY WITH STOCK RATINGS?
Bloomberg wrote that the valuations of most electric vehicle company stocks “assume rapid expansion of the sector. If this does not occur, stock prices will likely fall and many startups will be unable to rely on capital markets to fund their unprofitable ventures.”
Furthermore, financial analysts have downgraded the companies most exposed to the electric car sector, such as suppliers of lithium (the main metal for batteries) and charging point operators.
“Electric vehicles had a grace period for the initial enthusiasm of demand, but that appears to be over,” said Nicholas Colas of DataTrek Research.
WHY THE DEMAND FOR ELECTRIC CARS IS waning
Despite the “price war,” demand for electric cars has remained sluggish this year. Some think that the initial pool of users – the so-called first-adopters – has been exploited. Everyone else could be discouraged from purchasing a battery-powered vehicle due to high interest rates, charging infrastructure that is not yet widespread and the (relatively) few new models.
“If demand [for electric cars, ed. ] is already faltering, profit margins will be very small” for manufacturers, Colas added.
THE PROBLEMS OF RIVIAN AND LUCID
Since Tesla released its results on October 18, its shares have fallen by 14; those of Rivian and Lucid, other companies in the sector, both lost 10 percent. Tesla, however, remains one of the stocks with the highest value on the S&P 500 index, which brings together the five hundred largest capitalization US companies. A notable fact is that unprofitable startups like Rivian, Lucid, and VinFast (which is Vietnamese) have higher market valuations than a solid group like American Airlines.
Both Rivian and Lucid sell their cars at prices below production costs: lacking economies of scale, they must turn to capital markets to finance their operations. At this moment, however, loans have disadvantageous conditions; plus, demand for electric vehicles is weak. According to Bloomberg , this is a "deadly combination" for the two companies.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/smartcity/bolla-auto-elettriche/ on Sun, 05 Nov 2023 07:24:46 +0000.