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Electric-vehicle stocks have taken a hit the past few weeks amid a rotation away from highly valued tech and growth names, but that doesn't mean it's the end of the road for the EV boom, according to Mark Haefele, chief investment officer of UBS Global Wealth Management.
Long-term technological and environmental shifts suggest the boom should continue, while acknowledging that volatility in the share prices of individual companies argues for investors to diversify their exposure. Still, Haefele's team said investors should consider the underlying data.
Elon Musk's Tesla has led an incredible boom for electric vehicles over the past few years, and in 2020 alone, sales of electric cars rose 43% while overall car sales slumped 20%, according to data published on Tuesday by EV-volumes.com. The market has grown so much that these days, Tesla is just one of dozens of competitors in the rapidly-expanding industry.
In fact, Tesla's share of the US EV market fell to 69% in February, down from 81% in the prior year, a Morgan Stanley report found.
It's getting more crowded, too, as every major car company in the US has said they will be entering the EV market.
General Motors recently pledged to invest $27 billion to launch 30 EV models by 2025, and it has showed off new cars like an electric Hummer, which is set to be released in 2022. Ford released the Mustang Mach-E, which has taken market share from Tesla, and VW recently unveiled its plans to build six "gigafactories" in Europe by 2030 to aid with its EV business.
In China, EV players like SAIC Motor Corporation are targeting the lower-end market with cars starting at just $4,465. The company sold over 25,000 Hong Guang Minis in January alone.
Public transit is also getting a revamp from EV companies. Proterra, a company that makes electric public and school buses, inked a deal to go public via billionaire investor Chamath Palihapitiya's SPAC Arc Light Clean Transition Corp. in January.
Many analysts argue the EV boom is set to continue. Wedbush's Dan Ives said in a recent note to clients that he believes the "EV party and transformation is just beginning as this industry is on the cusp of a $5 trillion market opportunity over the next decade."
Haefele and his team agree with Ives, detailed below are three reasons why they see a long way to run for the EV boom.
- "Electric vehicles continue to rapidly gain market share. Electric vehicle sales have been rapidly gaining market share. The diverging paths of automakers have been confirmed during the pandemic. While the overall auto market contracted by 15% in 2020, global electric vehicle sales rose by 43%, reaching a 4.2% market share. This trend looks set to continue and will benefit pure EV makers, as well as traditional automakers that are adapting fastest to the growing consumer preference for electric vehicles," Haefele and co. wrote.
- "Electrification of vehicles is still 'The Next Big Thing' in the automotive industry. Tighter emission regulations mean there is no alternative to the switchover from combustion to electric engines - be they battery electric vehicles (BEV), plug-in hybrid electric vehicles (PHEV), or fuel cell vehicles (FCV). This move toward electric has also been embraced by traditional automakers such as Volkswagen, which has pledged investment of over EUR 50bn in its EV strategy as it aims to catch up with Tesla," Haefele and co. wrote.
- "The transformation underway in the auto sector goes beyond drive trains. We see parallel technological advances in the sector, along with a shift in consumer preferences away from ownership. On technology, progress is being made in areas such as autonomous driving, helped by the rollout of 5G networks. On the issue of ownership, increasing mobile connectivity and changing preferences among younger age groups are leading to the rise of car-sharing models. In the future, using a car will not automatically mean owning one. Overall, we foresee potential sales of some USD 400bn connected to our Smart Mobility theme by 2025, of which electrification represents more than half, an eight- to nine-fold increase on today's figure," Haefele and co. wrote.
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March 28, 2021 at 07:52PM
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