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