Don't Be Fooled By EV Production Cuts

By Larry Ramer

• EV makers’ shares are down on noise, not fundamentals

• Prime example is Elon Musk’s using high interest rates as a scapegoat for Tesla’s rapidly falling market share

• Lower battery prices are also great for EV makers’ top and bottom lines.

The demise of electric vehicles has been greatly exaggerated in recent days. 

After a few automakers, likely for narrow, tactical reasons, announced that they were cutting back on their EV production and Tesla (NASDAQ:TSLA) CEO Elon Musk expressed caution about the sector, EV detractors suggested that these developments indicate that the Electric Vehicle Revolution is over.

But the sales of these vehicles soared in the U.S. last quarter just as batteries have been getting much cheaper, suggesting that EVs are poised to continue proliferating in the coming months and years. As a result, investors should look to buy promising EV stocks on weakness. (See the Rocky Mountain Institute’s Sept. 21 article, “The EV Revolution in Five Charts and Not Too Many Numbers”)

Q3 Data Refutes the Pessimism

CNBC anchor Brian Sullivan, who frequently expresses skepticism about EVs on X, recently suggested in a post on the platform that many automakers would tremendously scale back their production of EVs.

 “Wow. GM suddenly abandons EV goals. Nothing to do with the strike. Guessing others follow as customers revolt and political winds possibly shift,” Sullivan wrote on October 24.

But the data tells a radically different story. 

Source: Rocky Mountain Institute

Specifically, last quarter U.S. EV sales jumped almost 50% versus the same period a year earlier to a record 313,000 vehicles. And the EV sales of Volvo (OTCMKTS:VLVLY), Nissan (OTCMKTS:NSANY), Mercedes-Benz (OTCMKTS:MBGAF), and Hyundai (OTCMKTS:HYMTF) all jumped 200% or more year-over-year. BMW’s sales surged nearly 200% to 13,079, while Rivian’s (NASDAQ:RIVN) climbed 126% Y/Y to top 15,500 vehicles.

Also noteworthy is that Tesla’s market share sank to 50% last quarter from 62% in Q3 of 2022, refuting the position of EV bears who say that companies other than TSLA can’t sell any EVs.

Strikes Hit Production

My research shows that three major companies – Ford (NYSE:F), GM (NYSE:GM), and Volkswagen (OTCMKTS:VWAGY) – decided to meaningfully reduce their EV production in recent weeks.

The profits of two of the three firms – Ford and GM – recently took a major hit due to the United Auto Workers’ strike. As noted, CNBC’s Sullivan asserted that the strike had nothing to with GM’s decision, But it’s hard to believe that the job action – which lowered the bottom lines of Ford and GM at a time when the Street is unforgiving of companies that miss analysts’ earnings expectations – is totally unconnected from their move to reduce their investments in EVs. 

Meanwhile, Volkswagen is getting hurt by economic weakness in its home markets in Europe and by its market share losses in China, neither of which has anything to do with the overall health of the EV sector.

Finally, Musk said that he’s “worried” about the impact of “high interest rates” on EV sales. But I can’t help but feel that Elon is using high rates as a scapegoat for Tesla’s rapidly falling market share.

Lower Battery Prices, Attractive EV Prices

Lithium-ion battery prices tumbled 30% between March 2022 and September 2023. Moreove, according to research firm Benchmark Mineral Intelligence, battery prices have declined to such a great extent that they “could allow [original equipment manufacturers] to sell mass-market EVs at comparable prices to (gas-powered) vehicles, with the same margin, improving the attractiveness of the EV transition for both consumers and automakers." 

Of course, lower battery prices are also great for EV makers’ top and bottom lines.

Given the rapid growth of the EV market despite the widespread pessimism about it, I recommend buying the stocks of the companies whose share of the market is increasing quickly. 

Specifically, BMW (OTCMKTS:BMWYY), Mercedes, Rivian, Nissan, and Hyundai, all of which are trading at very cheap levels, appear to be very attractive at their current levels. Similarly, KraneShares Electric Vehicles & Future Mobility Index ETF (NYSEARCA:KARS) is down more than 6% in the last 12 months.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. None of the above should be construed as investment or financial advice. Investing is inherently risky. Please perform your own due diligence.

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