Chinese EV Market Hits 20%. Tesla Hits a Trillion (Again).
Sales of electric cars hit 6.6 million in 2021, more than tripling their market share from two years earlier, according to IEA.org. This amounts to 9% of the global market share, up from 2.5% in 2019.
China has the fastest EV sales growth, with 3.4 million sold in 2021, for 20% of the nation’s fleet in December – tripling the country’s sales of 2020. In fact, this year’s sales in China are more than all of the EVs sold in the world in 2020.
Europe’s 2021 EV sales were 2.3 million, with about half a million EVs sold in the U.S. Germany is the largest EV market in Europe, which is why Tesla just opened a factory in Berlin. Interestingly, however, Norway has the largest EV market share, with 72% of the country’s vehicles, followed by Sweden and the Netherlands, at 45% and 30%, respectively (source: IEA.org).
The growth of EVs in China and Europe bodes well for Tesla and the Chinese automakers. Sales have more than doubled for the Chinese car companies, with Tesla at 65% growth year over year. Meanwhile GM sales were down -10.5% year over year in the 4th quarter of 2021, and Ford was up a mere 4.8%. (Email info@NataliePace.com with Auto Stock Report Card in the subject line to receive that file.) Tesla sold 936,000 vehicles in 2021, with 480,000 produced in China. The company is expected to sell 1.5 million units in 2022, an increase of 60%. However, even with the wind at the back of EV automakers, that doesn’t mean that everything is smooth sailing.
Backlogs, Bottlenecks and High Commodity Prices
We are all feeling the pain of inflation, particularly anyone who still drives a gas-powered vehicle. However, so are our businesses. The auto industry has been hurt by rising costs of commodities, including nickel, and supply chain bottlenecks. Tesla favored auto sales at the expense of their solar and battery power businesses in 2021, which helped to keep their EV output robust. The question is, “Will that work in 2022?”
Tesla’s net income in the 4th quarter of 2021 was $2.3 billion. We won’t know how much these headwinds will impact Tesla’s revenue and profitability until they report on their quarterly Vehicle Production and Deliveries, likely on or near April 2, 2022, and their 1Q 2022 earnings report, around April 26, 2022. Nio’s February 2022 vehicle deliveries (6,131) were up 9.9% year over year, but were -36% below January’s (9,652). Ford also reported that total vehicle sales in February 2022 were down -20.9% year over year (and were flat in January).
The auto companies will report their March and 1Q 2022 production and deliveries tomorrow or Monday. Judging from what has already been released, the news is not predicted to be great, although it’s certainly better for electric vehicle manufacturers than for gas combustion engines.
Commodity & Nickel Prices
Profits are going to be under pressure for all auto manufacturers due to the increase in commodity prices, and particularly a nickel shortage due to Russian boycotts. On March 13, 2022, Elon Musk warned of this. Indonesia is the largest producer of nickel, followed by the Philippines and Russia.
As you can see in the chart below, nickel prices soared when Russia invaded Ukraine. According to S&P Global, about 70% of the world’s nickel production is used in stainless steel, with just 5% used to make batteries – the power behind electric vehicles. However, in order to increase range, more nickel is now being used in batteries, and it is a higher grade (Class 1, 99.8% purity). We’ll know just how pressing the situation is on the manufacturing side in the next day or two, when the vehicle deliveries reports are released by the automakers. Again, we won’t know how dire the pricing is until the earnings reports are released at the end of next month.
Which Companies are the Most Vulnerable?
Electric vehicles are by far the fastest growing vertical in auto sales. Those newer EV-only companies are enjoying stellar growth. Those older companies that leaned into trucks and SUVs are suffering with sluggish growth and high costs. That competitive disadvantage is compounded by debt, liabilities, Other Post-Employment Benefits (OPEBs), and, in the case of Ford Motor Company, a junk bond rating.
EV tax credits have helped Tesla and the Chinese EV automakers to incentivize consumers to buy. Tesla and GM no longer qualify for these credits in the U.S. China is cutting their NEV (new energy vehicle) subsidy by 30% in 2022 and will end the incentives at the end of this year. Click for a list of automobiles and their U.S. tax credits.
Tesla stock is very expensive. The current P/E is 222, while the forward P/E is 104. An average P/E is about 17. Yes, growth stocks can take a slightly higher P/E. However, should a company with $5.5 billion in net income and $54 billion in revenue be worth over a trillion dollars? Are retail investors factoring in price or just following the memes?
It’s a risky time to be buying high in auto stocks, even EV auto stocks, particularly given the war, inflation, rising interest rates, negative yield curve and high gas prices – all of which can drag the economy into a recession. While Tesla is trading near its all-time high, some of the Chinese automakers with higher growth are trading near their 52-week lows. So, if there is an April rally, at least some of these can be picked up for a bargain.
Full Disclosure: I own shares in a few Chinese EV makers.
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Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The Power of 8 Billion: It's Up to Us and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money was released on September 17, 2021.
Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.Other Blogs of Interest
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.