THE STATE OF EVS: Tesla is getting annihilated.
In fact, since their peak back in 2021, Tesla stock is down 57% which correlates to a market
cap loss of $735 billion.
And this is during a time when tech stocks are doing better than ever.
Meta all-time high.
Google all-time high.
Amazon all-time high.
Microsoft all-time high.
And Nvidia?
Well, you already know.
It’s not just Tesla’s stock price that’s getting crushed either.
Tesla’s fundamentals aren’t looking great either.
Tesla’s quarterly revenue has stagnated since the end of 2022, their gross profit
has declined by 23%, and their operating income is down 50%.
Technically, their net income is actually up big, but that’s not because the business
is doing well but because Tesla received a whopping $5.9 billion one-time tax credit.
Now, all of this might not seem that bad.
At the end of the day, their still the largest automotive company, they still lead the EV
industry by far, and, they’re the only ones who have been able to build a profitable business
around EVs.
But, here’s the thing, the only reason that narrative worked was because Tesla was expected
to put in massive growth numbers year after year.
In fact, since 2020, Elon Musk has been promising a long-term annual growth rate of 50%, presumably
until Tesla reaches 10 million vehicles per year.
But, in 2023, Tesla only delivered 1.8 million vehicles which correlates to a growth rate
of 38%.
More concerningly, Tesla themselves have admitted that delivery growth in 2024 will be notably
lower than in 2023.
Some analysts even expect Tesla’s deliveries to fall next year.
And all of that is despite constant price cuts and tax credits which have made the Model
3 as cheap as $23,000 in California.
The more time that goes on, the more it seems that Tesla is much more of an automotive company
as opposed to a tech company.
And if that truly is the case, well, Tesla stock has a lot more downside left as the
company is still worth $200 billion more than Toyota despite only delivering a fifth of
the vehicles.
Also, Tesla is only the tip of the iceberg.
Zooming out, the rest of the EV industry is doing way worse.
Stocks like Rivian, Lucid, and Nio are down well over 90%.
And most of these EV startups are just trying to avoid bankruptcy at this point.
In fact, many of their investors are just hoping that the bigger investors will bail
these companies out.
Amazon in the case of Rivian, the Saudis in the case of Lucid, and the CCP in the case
of Nio.
And it’s not just the newer EV players either.
Legacy automakers are having an equally difficult time.
Ford, for example, has completely stopped shipping the F150 Lightning because demand
is simply so low.
Also, Ford has been losing $36,000 on every EV they’ve sold which is even worse than
Rivian’s $33,000 loss per vehicle.
Nothing is as bad as Lucid’s $227,000 loss per car though.
Clearly, the EV bubble has popped and we have yet to find a bottom.
But what happened?
Weren’t EVs supposed to be the next big thing?
Well, let’s find out.
INTEREST RATES: If you're interested in having companies pay
you, check out our bond investing app Silo in the description below, but anyway, to understand
what happened to the EV industry, we have to go back to the peak of the hype which was
back in late 2021.
At the time, we actually made a video called Rivian - The Epitome Of The EV Bubble.
To be honest, this wasn’t that hard to spot because Rivian boasted a valuation of $150
billion which not only made them the largest US company with no revenue but also made them
larger than Volkswagen.
It wasn’t just investors who were hyped either.
Consumers were even more hyped.
People were waiting 3 to 6 months to take delivery of their Teslas and they were paying
record high prices.
The Model 3 started at $47,000, the Model Y started at $63,000, the Model S started
at $100,000, and the Model X started at $115,000.
Rivian would also hike prices by 20% just as they started delivering their first vehicles.
And then everything changed in March of 2022 when the Fed started hiking rates from 0%.
Up until this point, Tesla was regularly offering 0% interest rate programs which made their
cars far more affordable.
Rate hikes didn’t affect the EV industry all that much over the first 3 to 6 months,
but it would catch up quick.
Tesla currently charges 6.5% interest and that’s for people with excellent credit.
For people with fair credit, that number goes up to over 11%.
In other words, the same cars suddenly cost 20 to 30% more because more of your car payment
was going to interest.
And this was especially relevant for higher-end vehicles like the Model S and X as well as
Rivians and Lucids.
Now, for the record, buying a luxury vehicle using a car loan is usually a terrible idea,
but that’s what a lot of people do.
The only way that EV makers could fight this new reality was by slashing prices like there’s
no tomorrow, and that’s exactly what happened.
The Model 3 dropped from $47,000 to $39,000, the Model Y dropped from $63,000 to $44,000,
the Model S dropped from $100,000 to $75,000, and the Model X dropped from $115,000 all
the way down to $80,000.
These price drops naturally crushed Tesla’s gross margins from 27% down to 18%, but given
Tesla’s maturity, they were able to survive these price cuts which are still ongoing.
It was a completely different story with the rest of the industry though.
Take Lucid for example.
When the Lucid Air launched in 2022, the price was $140,000 and Lucid actually increased
prices to $155,000.
Now, Lucid has launched more affordable variants since then, but do you wanna guess what the
Lucid Air starts at today?
$69,900.
Yeah, that’s why Lucid is losing over $200,000 on every single car they sell.
This is pretty rough as an EV maker, but from the consumer’s perspective, this is great
right, especially if you’re a smart buyer who’s paying cash.
All of those massive price cuts will go straight to your pocket.
You can buy a Model 3 for as little as $23,000.
That should skyrocket demand, right?
Well, that’s what you would think but that’s not what’s happening.
Despite record low prices, EV sales are stagnating and even declining and that brings us to the
next fatal blow for the EV industry: consumer interest.
WANING INTEREST: EVs have long been described as the inevitable
future of the automotive industry and if your timeframe is long enough, that’s still true.
But, maybe that future isn’t as close as we originally envisioned.
For example, New York wants all sales and leases of new light-duty passenger vehicles
to be zero-emission vehicles by 2035, and they want heavy-duty vehicles to follow the
same trend by 2045, but is this actually realistic?
At this point, 2035 is only 11 years away and despite all the EV hype, EVs only account
for 1% of registered vehicles on the road in the US.
EVs are fairing a lot better when it comes to sales, but even there, we’re only talking
6.5% market share.
So, what gives?
Well, historically, EV enthusiasts would argue that the main bottleneck was price.
If EVs were just cheap enough, everyone would switch over, but EVs are cheap enough today.
EVs aren’t quite comparable with used cars yet, but if you’re buying a new car today,
EVs have extremely competitive price tags, not to mention, the money you would save in
terms of gas, maintenance, and tax credits.
At the very least, EVs are cheap enough to control 25 or 30% of the market, yet they
only control 6.5% and sales are slowing which makes it abundantly clear that the average
American isn’t nearly as interested in EVs as you might think and cost isn’t the only
factor.
The leading concerns all seem to be regarding range and charging.
Nowadays, we see a bunch of EVs claiming to have ranges of 300 to 400 miles, but it’s
not the same as a gas vehicle with 300 to 400 miles of range.
If you turn up the heater and it’s cold outside, your range is gonna get crushed with
an EV.
Not to mention, it’s not only harder to find a charging station but it’ll take way
longer to charge than to just fill up gas.
If you have a short commute and can charge at home every day, this isn’t a big deal,
but for more versatile use cases like road trips, living in an apartment, or even just
forgetting to charge, owning an EV is often a headache.
That’s why most people who do own an EV still keep around a gas car as well.
What it seems like is that all the people who were pro-EV and were willing to deal with
these shortfalls simply already got an EV.
And, now it’s far far harder to convince the actual general public.
This trend is perfectly depicted by Tesla’s crashing Full Self Driving take rates.
Back in 2019, the take rate for the Model 3 was nearly 50%.
This was because everyone who was buying the Model 3 were innovators.
They not only wanted an EV but the latest tech possible which included self-driving
technology.
But, as we moved into the 2020s, the FSD take rate plummeted all the way to 7% as early
adopters entered the market and weren’t as willing to put up the hefty price for beta
software.
And now, we’re moving from the early adopter phase to the early majority phase, and these
people want a fully polished product including fast charge times, reliable range, great charging
infrastructure, strong performance under all weather conditions, and so on.
And until EV makers are not just able to deliver a low price but also a refined experience,
it’s gonna be an uphill battle.
THE RACE HEATS UP: And that brings us to the last major obstacle
that EV makers are facing which is that the competition is heating up.
For starters, Rivian just announced their more affordable R2 and R3 lines which have
seen an extremely positive response.
Lucid is also expected to introduce a new EV SUV in the near future.
These sorts of announcements are not only cannibalizing their own vehicles but also
vastly increasing the competition.
For example, a lot of people who were thinking about buying the Rivian R1S or the Tesla Model
Y are now just looking to buy the R2.
But, that’s not even the competition that I’m talking about.
The competition I’m actually referring to is legacy automakers.
Now, the EV community has had a blast clowning on the legacy auto industry for years, saying
things like they’ll never catch up, or they’re done for.
And for the most part, that was completely true.
Legacy leaders like Toyota, Honda, and Nissan have completely dropped the ball when it comes
to EVs.
GM, Ford, and Volkswagen have done a much better job, but it’s still nothing to brag
about, but what about the legacy underdogs, more specifically, Kia and Hyundai?
Now, if you’re like me, you're probably too big of an EV enthusiast to even consider
EVs from these companies, but that’s not true about the average person.
For the average person who’s just looking for a practical, affordable EV from a brand
they recognize and trust with service centers everywhere, Kia and Hyundai are awesome options.
In fact, while the rest of the EV industry is flatlining or declining, Hyundai enjoyed
a 40% increase in Ioniq sales and Kia enjoyed a 65% increase in EV6 and EV9 sales.
This isn’t to say that Kia and Hyundai are gonna overtake Tesla or something, but it’s
likely that the early majority is looking for something a lot different than what innovators
and early adopters were looking for.
And legacy makers may do better than expected with this market segment even if they are
late and don’t produce the fastest cars or the coolest cars because at the end of
the day, while they may not be at the bleeding edge of EV technology, they know what consumers
want more than anybody else.
Also, as a side note, I would argue the same thing with self-driving technology as well.
Tesla autopilot has long been described as being too far ahead to catch up, and maybe
that’s true for Google, Rivian, GM, and Ford, but what about Nvidia?
Nvidia has been involved in the autopilot space for as long as Tesla.
And given that the entire tech world relies on Nvidia’s AI infrastructure, it’s very
possible that Nvidia can not only catch up to Tesla but overtake Tesla.
None of this is to say that Tesla is done for.
After this soft spot in demand passes and EV hype picks up again, it’s likely that
Tesla will be able to start scaling quickly once again, and they will likely remain a
leader in autonomy.
Also, hopefully, Rivian and Lucid are able to pull through because they make great cars
and competition is always good.
But, with Apple not even wanting to enter the market despite spending 10 years and $10
billion on their own car, it’s clear that that journey is gonna be way longer and harder
than what EV investors were hoping for.
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