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It wasn’t long ago, the electric vehicle (EV) industry was the hottest segment of the U.S. economy. Now, it increasingly seems the industry could be entering a long winter, causing investors to shun EV stocks – particularly after Tesla’s recent disappointing quarterly update. The EV maker’s fourth-quarter earnings fell below consensus estimates for both earnings and revenues, and the firm’s outlook was equally bleak, warning of notably lower vehicle volume growth in 2024 compared to the previous year. Not to mention, competition from China’s electric car market is challenging U.S. EV makers, contributing to the industry-wide decline.
Tesla’s stock has plummeted around 12% since the Q4 earnings announcement, reflecting the pervasive downturn. This EV Winter shows no signs of thawing, with numerous EV startups facing bankruptcy, potentially leading to the collapse of several EV stocks, leaving poorly positioned investors empty-handed. However, amidst the storm, there is a glimmer of hope: this EV Winter will eventually end, and the surviving EV stocks will likely experience a significant upturn. Thoughtful investors who position themselves strategically could stand to reap substantial profits once the industry rebounds.
The Frosty Climate for EV Stocks
Why are EV stocks in such a deep freeze this winter? Every new technological revolution typically goes through three stages: invention, consolidation, and then a boom. The initial excitement surrounding a new technology gradually fades as reality sets in, leading to a period of market setbacks and numerous startup failures. Eventually, the technology proves its worth, leading to a resurgence of interest from consumers and investors. This cycle mirrors the advent of the automobile, which went through a similar trajectory.
Reflecting on the Gas-Powered Auto Era
Back in 1893, the first successful American gasoline automobile was designed, sparking an automotive frenzy. This era saw approximately 485 companies enter the automobile manufacturing business, eager to capitalize on the gas-powered car’s potential. However, only a handful of these companies survived the industry’s consolidation, becoming the titans of the modern economy that we know today. Similar to the contemporary EV boom, many hopeful startups failed to endure, with just a few emerging as successful industry leaders.
The Current Standstill in the EV Industry
Looming headwinds such as high financing rates and waning consumer interest have caused a substantial slowdown in U.S. EV sales. While the EV market experienced robust growth in 2021 and 2022, the final quarter of 2023 brought a significant deceleration, signaling a consolidation phase for the industry. Moreover, EVs have ceased to capture market share from traditional automobiles, indicating a plateau in EV sales penetration. This marks a critical phase for the EV industry, as many startups may succumb to bankruptcy, leading to the potential demise of various EV stocks and significant losses for some investors. Weathering this storm will be tough, particularly in 2024. However, those EV firms that endure are poised to thrive when the winter ends, likely by 2025.