10.05.2024 Upcoming Corporate Actions

Аватар на автора

Author

Date

Tesla & U.S. Carmakers: Affordability Issues Loom

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Overall passenger car sales statistics worldwide (that were highlighted in an article in March) indicate a key feature: while China and Europe are relatively more mature markets for Battery Electric Vehicles, the U.S. (and Canada) can relatively be considered a growth market. This has many implications for Tesla, which is the dominant BEV manufacturer in the latter.

Tesla’s margins have been considered to be even more fraught after a wave of price cuts were announced in recent times:

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Now, like most carmakers, the company locks prices via mid- to long-term supplier contracts so the concerns over Tesla’s margins are valid. However, over a longer term, this might not be a pressing issue. A key cost component in a BEV is the Lithium-ion battery. Lithium prices have seen a precipitous fall over the YTD:

This is being attributed to two factors: softer demand for BEVs in China as well as larger inventories of vehicles worldwide. Softer demand for BEVs in China, a market that has shown a year-on-year increase in overall car sales, indicates its relative maturity. The larger inventories of vehicles paired with lowering overall sales in the U.S., however, indicate buyer constraints and affordability issues. This is an issue for U.S. carmakers: foreign markets have a deep bench of legacy and upstart competitors while customers in its home turf are increasingly reduced to a “creamy layer” user segment that is over-catered.

In that regard, the decision by Tesla to take a margin hit in order to maintain market share is entirely logical. In future production runs, the present-day depression of battery raw material will likely prove to generate higher margins, depending on how it negotiates with its suppliers. The price cut also had an interesting effect on used BEV sales in the U.S. over the course of Q1 this year: a 32% Year-on-Year (YoY) jump in sale volumes are estimated to have been due to falling prices because of these cuts. These figures also lend support to what user segment drives U.S. BEV sales as well as the affordability issue.

Also depressing the long-term outlook for lithium prices is the increasing viability for sodium batteries as an alternative to those made from lithium, with sodium estimated to being 1,000 times more abundant than lithium. One company is already moving to take advantage of this breakthrough: JAC Group – jointly held by a Chinese provincial government and Volkswagen (VW) – announced the launch of the compact 5-door sedan “Hua Xianzi” powered by a sodium-ion battery. The battery solution is developed in association with HiNa Battery, a company affiliated with the state-run Chinese Academy of Sciences.

Putting aside the aspect of lowering U.S. dominance in technology, increasing adoption of sodium-ion batteries by carmakers will likely serve to propel sales: lithium battery packs will continue to become cheaper since sodium-ion battery packs come with price advantages built in.

Sales and Price Performance Trends

In terms of U.S. electric vehicle sales, there’s no doubt that Tesla maintains the lion’s share of sales in pure numerical terms. In terms of trends over the year as of Q1 of this year, however, the results are quite interesting:

While Ford and General Motors have been racking up a strong increase in sales, American upstarts Lucid and Rivian as well as German legacy houses BMW, VW and Mercedes have shown very strong upticks. While the latter certainly do benefit from having a low numerical base in the prior year, the strong numbers indicate that their offerings are finding strong traction among the addressable market segment in the U.S.

Stock price performance for the U.S. carmakers in the Year Till Date (YTD) graphically is decidedly mixed but do show some correlation with the broad-market S&P 500:

When laid out month-wise, however, there is evidence of some form of rationalization:

Data suggests that Tesla has been a strong directional outlier in the months leading up to April. However, April has been a depressor for 4 out of the 5 U.S. carmakers. Such a large proportion of this basket suffering a reversal is indicative of industry-wide gloom on the sales outlook: with price cuts being the way forward to keep short-term demand going, virtually every carmaker is expected to get hit on margins. However, relative to “pure play” carmakers, “diversified” legacy carmakers are tending to maintain a stronger and less volatile trajectory relative to the index.

In Conclusion

Being in a growth market with an affordability crisis and a small number of controlling over-catered user segments is a highly tenuous situation for U.S. carmakers. Also increasingly obsolete – much like fossil fuel cars – is the argument that an investment in “pure play” EV carmakers is an investment in technological innovation. Outside of affordability, overall trends suggest that buyers are essentially only constrained from switching to BEVs along two lines:

  1. BEVs requiring long “down times” for charging when compared to either fossil fuel-driven cars or Plugin Hybrid Vehicles (PHEVs).

  2. Lack of quick-charging infrastructure outside of high-density charging clusters.

Not considering affordability or infrastructure in favour of arguing for technology is a simple case of missing the forest for the trees. In that regard, Tesla has long been overvalued for tis technology. As BEVs are increasingly normalized, the argument for overvaluation grows weaker.

The infrastructure impediment has a proven solution as seen in China and other countries: creating a universal charging standard across the United States – both “quick” and “slow” – would likely create the pathway for even higher adoption. However, this would further normalize the likes of Tesla against legacy carmakers making an EV push. The latter is by no means a minority: virtually every major carmaker has committed to producing a stable of BEVs.

However, no stock exists in a vacuum. What does help the likes of Tesla and large legacy carmakers is that, given the macroeconomic outlook, size is driving a bias in investor choice. The larger the company, the higher its imputed survivability. Note: This was discussed in greater detail in a recent article.

Balancing this versus the well-exhibited deflation of overvaluation in U.S. equities implies that the trajectories of carmaker stocks are bound to be volatile in the periods to come for at least the duration of the current year. For sophisticated investors, the likes of the Tesla 3X Long ETP and Tesla 3X Short ETP provide easy one-click solutions to leveraging and capitalizing on short-term opportunities on the upside and downside respectively.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Share this:

Related Products:

Related Products:

Related Articles

Market conditions prime SVLT for outperformance against the Nasdaq-100
Market conditions prime SVLT for outperformance against the Nasdaq-100
Market conditions prime SVLT for outperformance against the Nasdaq-100

Required Information

Upcoming Webinar

Technical Analysis Strategies for Successful Trading

by Violeta Todorova

22.05.2024
3.00 PM GTM+1

Welcome to Leverage Shares

Terms and Conditions

Notice

If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.

If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.

Risk Warnings

The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.

This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.

Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.

This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.

United States Visitors

The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.

Persons accessing this website in the European Economic Area

Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).

Exclusion of Liability

Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.

Leverage Investment

Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.

Cookies

Leverage Shares Management Company may collect data about your computer, including, where available, your IP address, operating system and browser type, for system administration and other similar purposes (click here for more information). These are statistical data about users’ browsing actions and patterns, and they do not identify any individual user of the website. This is achieved by the use of cookies. A cookie is a small file of letters and numbers that is put on your computer if you agree to accept it. By clicking ‘I agree’ below, you are consenting to the use of cookies as described here. These cookies allow you to be distinguished from other users of the website, which helps Leverage Shares Company provide you with a better experience when you browse the website and also allows the website to be improved from time to time. Please note that you can adjust your browser settings to delete or block cookies, but you may not be able to access parts of our website without them.

This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2. 

By clicking you agree to the Terms and Conditions displayed.