The EV Bubble Has Popped. There’s No Denying the Numbers.
By Al Root
Dec 07, 2023, 1:30 am EST
Investors, and car companies, are trying to figure out what’s next for electric vehicles after a slowdown in the rate of growth that is being blamed on everything from higher interest rates to EV technology to Americans’ willingness to go electric.
Whatever the reasons, one thing is certain: the EV bubble has popped. Just look at the numbers.
The combined peak market capitalization of Nikola, Fisker, Rivian Automotive RIVN
4.41%
, Lucid, NIO NIO
-3.35%
, XPeng, Polestar Automotive, Canoo, and Lordstown Motors was once about $470 billion. The peaks for those start-ups occurred from 2019 to 2021, when benchmark interest rates ranged from about zero percent to 2%.
Today, the market caps add up to about $59 billion—a drop of 87%. Investors have lost their appetite for stocks that don’t generate free cash flow. Over their histories, that group of nine has used about $46 billion in cash combined to build their businesses.
That spending has yielded vehicle sales of roughly 420,000 units over the past year, which works out to more than $100,000 for each car sold.
Of course, the companies all raised money before they were selling any—or a significant number—of vehicles. Still, the 420,000 number looks kind to most of the group. NIO, XPeng, and Rivian accounted for more than 80% of those sales. Revenue for the nine is expected to total about $36 billion in 2024, with about 70% of that figure generated by NIO, XPeng, and Rivian.
To say it has been tough to be an EV start-up is an understatement. It hasn’t been easy either or the three profitable EV makers: Tesla TSLA
1.37%
, BYD 1211
-0.47%
, and Li Auto. Their peak market capitalizations totaled some $1.4 trillion. Today, that sum is down to about $900 billion. Tesla accounts for the majority of both numbers. Its capitalization has gone from about $1.2 trillion to about $770 billion.
Those three companies have generated some $4 billion in free cash flow over the first three quarters of 2023 and about $20 billion in free cash flow combined over their existence. Tesla accounts for almost half of that figure.
Traditional auto makers haven’t been spared either. General Motors, Ford Motor F
1.22%
, Stellantis, and Volkswagen have all leaned into the EV trend, announcing billions in spending on battery plants and new models. Their combined market capitalization has gone from a peak of about $425 billion to $220 billion, down almost 50%.
All told, roughly $1.4 trillion in market value has been wiped out in the past couple of years as investors reassessed EV valuations.
They are reassessing because growth appears to be slowing. General Motors and Ford have both delayed some spending on EVs and pushed out sales goals.
And the market for hybrid vehicles is thriving. Through October, hybrid sales at hybrid leader Toyota Motor vehicles were up about 28% year over year—and hybrid sales have accounted for essentially all the Japanese company‘s sales growth so far in 2023. That growth has pushed up the stock. Shares have gained more than 35% over the past 12 months.
Still, demand isn’t that bad. Through the end of the third quarter, sales of all battery electric vehicles, or BEVs, were up about 50% year over year in both the U.S. and Europe. In China, where BEVs account for some 25% of all new car sales, growth has been closer to 20%.
“What we’ve been talking about is a slowdown in the growth of demand. It’s not a slowdown. It’s a slowdown in the rate of increase,” GM CFO Paul Jacobson told Barron’s in an interview last week.
Jacobson believes EV demand will keep growing in the U.S. as charging infrastructure improves, new models are introduced, and American car buyers get used to the technology.
Wall Street agrees with Jacobson. RBC analyst Tom Narayan, Bernstein analyst Toni Sacconaghi, and others are on the record.
Narayan and Sacconaghi have both written that demand is fine, but more models are needed to cover more of the overall automotive universe. There is a plethora of midsize crossover EVs. There is a dearth of smaller sedans, midsize trucks, and larger SUVs.
Models matter. Even Tesla is experiencing a slowdown in the rate of growth. Wall Street expects the company to ship about 2.2 million units in 2024, up about 20% to 25% compared with 2023. That’s far from the 50% average annual growth maintained from 2020 to 2023.
Tesla hasn’t launched a new model since 2020, when the Model Y hit the streets. The Cybertruck was just launched, but that is expected to be a lower-volume vehicle for the coming few years.
In an interview released Tuesday, CEO Elon Musk said the company is quite far advanced” in work on a smaller, lower-priced vehicle. That vehicle will be good for the EV industry—and for Tesla’s market share.
EV technology isn’t dead. What’s gone forever is the sky-high valuations for EV start-ups years away from profitability.
Write to Al Root at allen.root@dowjones.com |
