• Market Crumbs

Despite Tesla's Short Squeeze, The Broader EV Market Isn't Exactly Hot

Image via John Cameron on Unsplash

On the heels of Tesla's unbelievable short squeeze, which has seen the electric vehicle maker’s market capitalization cross $100 billion for the first time, you'd be inclined to believe the demand for EVs is soaring.

After all, Tesla is now worth more than General Motors and Ford combined. Tesla now trails only Toyota, the world's largest automaker by market capitalization, by about $125 billion. Along with the fact that the move is clearly driven by a short squeeze, investors are valuing Tesla based on future sales, because Tesla's current sales are a fraction of the other automakers' sales.

Either way, Tesla is upending the automotive industry that has been dominated by these companies for more than 100 years. Tesla, along with government mandates and incentives across the world, has caused automakers to rush to bring EVs to the market.

However, when it comes to actual sales, the story appears to be much different. According to Edmunds, only 325,000 plug-in passenger vehicles were sold in the United States last year, a 6.8% decline from the 349,000 sold in 2018. The total represents a meager 2% of the 17 million total vehicles sold in the U.S. in 2019.

"The number of battery-electric models available more than doubled last year, but EV sales didn’t budge much. That’s troubling," Mark Wakefield, who heads the automotive practice at consulting firm AlixPartners, said.

EV sales aren't disappointing in just the U.S. In China, sales of "new energy vehicles," most of which are EVs, fell 4% in 2019, according to the China Association of Automobile Manufacturers. European sales are not yet finalized, but are also expected to paint a disappointing picture.

There are a handful of factors that may explain why EV sales are struggling. Most EVs only get a few hundred miles on a full charge. To make matters worse, EV charging stations are a lot scarcer than gas stations. EVs cost more than comparable cars, even more so when factoring in various tax incentives that are expiring. Gas prices have been relatively stable over the last few years, which has caused the benefits of owning an EV to shift compared to when gas prices are higher.   

Not everyone is bullish on EVs. "Are there really customers who truly want them? I'm not so sure because there are lots of issues regarding infrastructure and hardware. I do not believe there will be a dramatic increase in demand for battery vehicles, and I believe this situation is true globally," Honda Motor CEO Takahiro Hachigo said when asked about EVs last month. "But I don't believe it will become mainstream anytime soon." 

Automakers—both luxury and on the lower end of the market, have had a tough time selling their EVs. Last year, Jaguar sold only 2,594 of its I-Pace, while Audi sold only 5,369 of its E-tron. Hyundai sold only 3,600 of its Kona, while Kia sold fewer than 1,000 of its Niro. The lackluster demand has even caused Mercedes-Benz to push back the release of its first all-electric vehicle in the U.S. to 2021. 

Global automakers will spend $225 billion on EV development by 2023, according to AlixPartners. With the global auto market already facing numerous headwinds, automakers better hope EV sales improve or else the ramifications of their bets could be felt through the industry and the global economy as a whole.  

Leftover Crumbs

  • Did the fake meat bubble just burst? Burger King, which saw same-store sales jump 5% to the highest level since 2015 following the introduction of the Impossible Whopper last year, is now cutting the price of the fake meat sandwich. Burger King will now offer two Impossible Whoppers for $6, down from the previous price of $5.59 per burger. Ironically, SoftBank, which is having a difficult start to the year, announced yesterday it has invested in Memphis Meats, which manufactures meat from animal cells as a replacement to traditional meat.

  • They want to focus on the core, money-losing business. WeWork is divesting non-core assets as it has sold Teem, its business management software company, as well as its stake in co-working company The Wing. WeWork has now sold stakes or wound down a handful of its businesses over the last few months. WeWork is currently in the process of selling two other companies it owns, according to the company. "These sales mark the latest progress in WeWork’s evolution and allow our talented team to focus on the core business and delivering an exceptional experience for our members," Artie Minson, co-CEO of WeWork said. 

  • The effect of low energy prices. Amidst declining energy prices, U.S. and Canadian oil and gas company bankruptcies spiked 50% in 2019, according to law firm Haynes and Boone. 2019 saw 42 bankruptcies in the sector, up from 28 in 2018. "This increase in year-over-year filings indicates that the reverberations of the 2015 oil price crash will continue to be felt in the industry through at least the first half of 2020," the report said.

  • Don't they know "cash is trash?" Investors pulled $4.5 billion from mutual funds and exchange-traded funds that hold U.S. stocks last week, according to data from the Investment Company Institute. This extends the longest consecutive retreat from the U.S. stock market since early 2016. Investors poured nearly $17 billion into bond funds last week, after pouring $24.7 billion into them the prior week. The total marks the largest two-week inflow to bond funds since 2013. 

  • Fender struck the wrong chord. Guitar-maker Fender has been fined £4.5MM by the United Kingdom's Competition and Markets Authority for price fixing. The company, whose guitars were used by Eric Clapton and Jimi Hendrix, broke competition law by preventing retailers from discounting its instruments online. "Quite simply, this behaviour is against the law," Andrea Coscelli, the CMA’s chief executive said. "Break competition law and you will face serious consequences."