Tesla, China is concerned about the collapse of EV stocks. The automaker’s predictions could be the deciding factor.

Given the price trends so far in 2024, preaching patience will likely be well received.Tesla, BYD stock
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Rivian Automotive
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Li Auto has plunged an average of 27% from the start of the year to Wednesday’s close.of

S&P500

It fell about 1% over the same span. For EV startups, this means about $130 billion in market capitalization has been wiped out.

Stock prices for traditional automakers aren’t doing so well.ford motor
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Volkswagen shares are down about 5% on average, wiping out about $13 billion in market value.

Toyota Motor Corporation is one of the few automakers bucking this trend. The company’s stock has risen about 10% since the beginning of the year, adding nearly $30 billion to its market value. Toyota may benefit from lower EV sales. By 2023, sales of fully electric cars will remain at around 100,000 units. Approximately 3 million hybrid vehicles were sold.

The reason for EV stock’s slump is easy to pinpoint. First, Tesla lowered the prices of its EVs in China and the United States. This is a sign of weakening demand, increased competition, or both. Lower prices also mean lower profit margins and revenue expectations.

Next is China, where weaker-than-expected economic growth and weaker-than-expected retail sales growth are weighing on stock markets.of

Shanghai Composite Index

It has fallen about 5% since the beginning of the year.

As an economic powerhouse, China data is important for most stocks. This is doubly true for the automotive industry. China is the world’s largest market for new cars and new EVs. Of the 8.7 million all-battery electric vehicles (BEVs) sold in China, the United States, and Europe in 2023, approximately 70% were sold in China.

Sales in these regions were 8.7 million units, representing an increase of approximately 33% year over year. Although at an impressive pace, growth is still slowing.

Looking at China, BEV sales increased by about 20% year-on-year in 2023, and sales in 2022 increased by 84%. Citi analyst Jeff Chan expects growth to be 16% in 2024.

Part of the slowdown in growth is the penetration of existing vehicle sales. It is too expensive and limits the rate of growth of the technology. Chung predicts that about 27% of new cars sold in China in 2024 will be fully electric, and a further 16% will be plug-in hybrids, for a total of 43% of all new cars. I am. In the United States, hybrids and BEVs accounted for approximately 15% of total sales, with approximately 1 million hybrids and 1.2 million BEVs sold.

” [Chinese] The EV market is rapidly becoming oversaturated, [a] A vicious price war is on the horizon,” Luis Vincent Gabe, CEO of stock market research firm Gabekal, said in a report on Wednesday. “This is not good news for competitors or shareholders.”

Tesla’s price cuts, slowing growth in EV sales, and weak economic indicators in China herald the arrival of EVmageddon. This impact has cast a shadow on positive news for the auto industry as a whole, such as expectations for lower interest rates in the second half of this year, which will ease car payments, and lower prices for new cars, which will stimulate demand.

All of this combined could weaken the outlook for both EV and traditional automakers heading into the fourth quarter earnings season.

“We see little reason for auto companies to lead 2024 heroically and broadly,” UBS auto analyst Joseph Spak said in a note Tuesday. “We will be cautious about earnings in the fourth quarter of 2023.”

He advises investors to wait for the company to release its numbers and provide its 2024 outlook. If the guidance is good, investors could consider re-entering. There is no penalty for being patient.

When the time is right, Spack likes GM stock and rates the stock a “buy.” His colleagues agree. Approximately 70% of analysts covering the company rate it as a “buy.” The average buy rating for S&P 500 stocks is approximately 55%. About 40% of analysts rate Tesla and Ford stocks as “buys.”

Wall Street’s favorites among EV startups are Lee Auto and Rivian, with stocks rated Buy at about 90% and 65%, respectively. When it comes to mature pure-play EV companies, Wall Street prefers BYD to Telsa. Approximately 94% of analysts rate BYD stock as a “buy.”

Investors shouldn’t forget about Toyota either. The hybrid technology leader has 67% of analysts rating the stock a Buy.

Email Al Root at allen.root@dowjones.com.