Source: Barron's Author: Al Root

Investors and car companies are trying to figure out the next development trend of electric vehicles. Previously, the slowdown in electric vehicle growth was blamed on various factors, from higher interest rates to electric vehicle technology, to Americans' willingness to switch to buying electric vehicles.

Regardless of the reason, one thing is certain: the electric vehicle stock price bubble has burst, just take a look at the following numbers to find out:

$Nikola (NKLA.US)$,$Fisker (FSR.US)$,$Rivian Automotive (RIVN.US)$,$Lucid Group (LCID.US)$,$Canoo (GOEV.US)$,$Lordstown Motors (RIDEQ.US)$,$NIO Inc (NIO.US)$, $XPeng (XPEV.US)$und$Polestar Automotive (PSNY.US)$The total market value once reached 470 billion US dollars. The peak period for these startups occurred from 2019 to 2021, when the benchmark interest rate was between 0% and 2%.

Today, the total market value of these stocks is around $59 billion, down 87% from the same period last year. Investors have lost interest in stocks that do not generate free cash flow. In the history of development, this group of nine companies has used a total of about 46 billion US dollars in cash to establish their own businesses.

In the past year, these expenses collectively yielded about 420,000 car sales, which is equivalent to spending more than 100,000 US dollars per car on a flat basis.

Of course, these companies all raised capital before selling any (or a large number) of cars. Despite this, the figure of 420,000 is still out of reach for most of these companies. The three companies NIO, Xiaopeng, and Rivian together account for more than 80% of this sales. By 2024, the total revenue of these nine companies is expected to reach $36 billion, 70% of which will still come from NIO, Xiaopeng, and Rivian.

It's a bit of an understatement to say that electric vehicle startups have always been tough. Whether it's$Tesla (TSLA.US)$,$BYD Company Limited (002594.SZ)$Or$Li Auto (LI.US)$It's not easy for these three electric vehicle manufacturers to be profitable. At their peak, their total market capitalization was around $1.4 trillion. Today, that figure has fallen to around $900 billion. Tesla accounts for most of these two figures, and its market value has dropped from $1.2 trillion to $770 billion.

The three companies generated approximately $4 billion in free cash flow in the first three quarters of 2023, and in total generated approximately $20 billion in free cash flow during their lifetime to date. Tesla accounted for almost half of this figure.

Traditional car manufacturers have not been spared.$General Motors (GM.US)$,$Ford Motor (F.US)$,$Stellantis NV (STLA.US)$und$VOLKSWAGEN A G (VWAGY.US)$They are all shifting to the trend of electric vehicles. They have announced that they will invest billions of dollars in battery manufacturers and new models, yet the total market capitalization has fallen from a peak of about 425 billion US dollars to the current 220 billion US dollars, a drop of nearly 50%.

All in all, over the past few years, as investors reevaluate the valuation of electric vehicles, about $1.4 trillion in market value has evaporated.

One reason for their reassessment is that growth appears to be slowing. Both GM and Ford have delayed spending on electric vehicles and lowered their sales targets.

Meanwhile, the hybrid car market is booming. As of October, leading hybrid vehicle companies$Toyota Motor (TM.US)$The sales volume of hybrid vehicles increased by about 28% year on year. So far in 2023, hybrid vehicle sales have basically been the entire source of Toyota's sales growth. This growth has also boosted the stock price. Over the past 12 months, the company's stock price has risen by more than 35%.

Demand isn't that bad, though. By the end of the third quarter, sales of all battery electric vehicles (BEVs) in the US and Europe had increased about 50% year over year. In China, battery electric vehicle sales account for about 25% of total new car sales, an increase of nearly 20%.

“We've been talking about a slowdown in demand growth, not a slowdown in demand. GM's chief financial officer Paul Jacobson (Paul Jacobson) said in an interview with Barron's last week.

Jacobson believes demand for electric vehicles in the US will continue to grow as charging infrastructure improves, new models are introduced, and American car buyers gradually adapt to this technology.

Wall Street also agreed with Jacobson, including Royal Bank of Canada analyst Tom Narayan (Tom Narayan), Bernstein analyst Toni Sacconaghi (Toni Sacconaghi), and other analysts.

Narayan and Sakonaghi both wrote that demand is fine, but more models are needed to cover more of the overall automotive sector. There are too many mid-size crossover electric vehicles on the market today, but there is still a shortage of small cars, medium trucks, and SUVs.

The model is very important. Even Tesla's growth rate is slowing down. Wall Street expects the company to ship about 2.2 million vehicles in 2024, an increase of about 20% to 25% over 2023, which is far below the average annual growth rate of 50% from 2020 to 2023.

Since the launch of Model Y in 2020, Tesla has not launched a new model. Although the latest model, an electric pickup, has just been launched, it is expected that in the next few years, it will be a relatively niche model.

In an interview published on Tuesday, Tesla CEO Elon Musk (Elon Musk) said the company has made considerable progress in developing small, low-cost cars. This kind of car will benefit the electric vehicle industry, as well as Tesla's market share.

Electric vehicle technology has not died out; what has disappeared is the sky-high valuation of electric vehicle startups that are still some time away from being profitable.

edit/lambor