The Zhitong Finance App learned that the electric vehicle industry will be greatly impacted in 2023 because people gradually realized that the “green wave of electrification” that prevailed in early 2022 is unlikely to be realized according to plan. Continued inflationary pressure and macroeconomic pressure in the context of high interest rates have brought serious affordability problems to consumers and seem to be continuously driving up the consumer buying curve. According to some forecast data, electric vehicle sales will stabilize over the next six months.

Investors' confidence in the industry is low. Although there is no shortage of companies with excellent stock price performance, the return on stock prices of most electric vehicle companies since this year is unbelievably low. For example, Faraday Future (FFIE.US) has fallen as high as 95% so far this year, while new car builders Arrival (ARVL.US), Arcimoto (FUV.US), and Volcon (VLCN.US) have all declined by more than 80%. Meanwhile, global electric vehicle leader Tesla (TSLA.US) became the winner in the electric vehicle industry in 2023, with a stock price increase of more than 70%.

Despite increasing competition for electric vehicles around the world, the electric vehicle giant hasn't lost much of its market share. By the end of September, Tesla's share of the global pure electric vehicle market was 19%, and the share of the US pure electric vehicle market was 56.1%. Both indicators are above the levels warned by skeptics of Tesla's stock price. The traditional American car builders Ford Motor Company (F.US) and General Motors (GM.US) have both abandoned their positive electric vehicle production goals. Reaching the UAW trade union contract after the strike settlement will put greater financial pressure on these traditional automobile companies.

Recently, Wall Street analysts have lowered ratings and stock price expectations for almost all types of electric vehicle companies. The main logic is that financial markets and consumers are increasingly convinced of the hawkish view put forward by Federal Reserve Chairman Powell and other officials to maintain high interest rates for a long period of time. Therefore, under the influence of adverse expectations such as continued high borrowing costs, demand is weakening.

According to GM and Honda, the market environment for electric vehicles is changing, especially as costs are increasing, and demand is weaker than expected. Tesla CEO Elon Musk (Elon Musk) even more bluntly issued a demand warning: “I am concerned about the high interest rate environment we are in.” “What I want to emphasize is that the vast majority of people buy a car and repay on a monthly basis. If interest rates stay high or even higher for a long time, people's demand will of course weaken.”

The majority of Tesla stocks — Adam Jonas (Adam Jonas), a star analyst from Morgan Stanley, said this week: “Rising interest rates/rising capital costs, as well as slowing demand in the electric vehicle market, may continue to reveal weak projects and business models that may be difficult to bridge the gap with their self-financing status.”

Investors in the stock market have already reacted completely negatively to the electric vehicle outlook. Over the past three months, the iShares Autonomous Driving Electric Vehicle and Technology ETF (iShares Self-Driving EV and Tech ETF), which includes electric vehicle leaders such as Tesla and Rivian, declined close to 30%. Since this year, it has significantly outperformed the US stock market — the S&P 500 Index.

What do the giants think about the future of the electric vehicle industry?

For electric vehicle startups, the scale of production in recent years can be described as a matter of life or death for the company. It is necessary to achieve a high level of production to keep them in a break-even state. For major OEMs, “prudence” seems to be a viable mode of operation in an environment of weak demand. Unlike Tesla, which started a wave of price cuts, Toyota (Toyota), an established giant in the automotive industry, lowered its electric vehicle sales expectations by nearly 40% and revealed that it will tend to focus on hybrid vehicles to avoid excessive price competition in the electric vehicle market. Honda Motor recently announced its withdrawal from plans to cooperate with General Motors to produce cheap electric vehicles.

German luxury car manufacturer BMW AG (BMW AG) used sales brought by premium car brands to help BMW resist the impact of weak global demand for electric vehicles. The total sales volume of BMW's three major automobile brands in the third quarter: BMW, MINI, and Rolls-Royce (Rolls-Royce) increased 5.8% year over year to 621,699 units. Among them, sales of all BMW series models increased 6.2% year over year to 549,941 vehicles. The EBIT profit margin for the Q3 luxury car business was 9.8%, compared to 8.9% in the same period last year.

In addition, BMW has reiterated its performance outlook for the whole year of this year, and expects the company's business to develop steadily for the rest of the year. Therefore, it expects the EBIT profit margin of its automotive division to be between 9.0% and 10.5%, while advancing the share of all-electric vehicle sales at a steady pace. In terms of stock prices, BMW's stock price performance in the European stock market far surpassed that of its European automobile manufacturing peers. BMW's stock price has risen by more than 20% since this year, while the stock price of Mercedes-Benz, one of its biggest competitors, has fallen by more than 5%, while Volkswagen has fallen by nearly 10% during the same period.

As for the three major car companies in Detroit that are in the midst of a strike, Morgan Stanley analyst Adam Jonas believes that due to concerns about capital expenditure discipline, traditional OEMs will obviously slow down the pace of investment in electric vehicles and will spend more frugally. This raises the question: if automobiles are a “large-scale business,” and achieving a low-cost leading model will be a decisive factor in the success of electric vehicle strategies, then how can large OEMs be frugal?

Morgan Stanley believes that one option for traditional car manufacturers is to drive “cooperative leverage” and then share costs. For example, the three Detroit car giants General Motors, Ford, and Stellantis (Stellantis) can cooperate with Chinese automobile companies, as well as electric vehicle startups, cooperate closely with each other, and even reach licensing or related supply agreements with Tesla. This strategy will mark a “complete reversal” from the previous model of replicating Tesla's model through large-scale upfront proprietary investments in supply chains, unique manufacturing capabilities, basic software development, internal battery procurement, and downstream infrastructure.

Notably, Tesla CEO Musk said earlier this year that the company is in talks with another major automaker to license fully automated driving software. Rivian Automotive (RIVN.US), a new American car builder, is trying to get rid of its exclusive partnership with Amazon (AMZN.US), which may lead it to establish a more important partnership or new production agreement. Some analysts believe NIO Auto's (NIO.US) aggressive moves in Europe may be a precursor to cooperation with local automakers.

In addition to cooperative initiatives, another factor that may drive the development of the electric vehicle industry is declining costs. By 2025, battery prices are expected to drop to $99 per kilowatt-hour, which will be 40% lower than in 2022. Goldman Sachs, a major Wall Street firm, predicts that nearly half of the cost reduction will come from falling prices for electric vehicle raw materials such as lithium, nickel, and cobalt. According to analysts' expectations, it is estimated that from 2023 to 2030, battery pack prices will drop by an average of 11% per year. On the basis of total cost of ownership, it is possible to achieve cost parity with internal combustion engine vehicles in the middle of this decade (around 2025). Of course, if successful, this would largely resolve the affordability issues consumers are facing recently.