The EV revolution has stalled

ICE vehicle assemblers cutting EV output are now undervalued

With fanfare globally, leftist governments universally embraced the development of the modern Electric Vehicle (EV) as a solution to the imagined “climate crisis” based on the foundation of a flawed theory that carbon dioxide (CO2) causes climate change. Almost overnight, taxpayer dollars were squandered on a plethora of incentives not only to prompt consumers to overpay for a Tesla but also to encourage private money to build infrastructure such as charging stations and battery manufacturing facilities.

Some of it was silly by any measure. Trudeau giving billions to battery manufacturing companies to locate plants in Canada where the government contribution was more than the total cost of the facility - not as much an “incentive” as an outright grant making it virtually impossible for anyone but the taxpayer to lose out on the venture. Incentives in United States and several Canadian provinces provided a few thousand dollars to anyone who bought an EV, typically high income people who could well afford the expensive vehicles without any government help and useless to those lacking enough income to afford one since a few thousand dollars wasn’t going to make the average Canadian buy a $100,000 car when they can’t make ends meet at the grocery store or afford their mortgage or pay their rent.

The bloom is off the rose. EV sales have reversed their stellar growth and seem in decline according to Canadian government data on EV registrations. The government couldn’t help itself from including hybrids as EV’s to bolster the “progress” they need to claim for wasting so much money, ignoring the reality that hybrids are internal combustion engine (ICE) vehicles with a battery booster.

Investors rushed in to the EV space, bidding up Tesla shares to extreme valuations and betting that battery metals like nickel, cobalt and lithium would be major beneficiaries of the EV “revolution” the climate nutters in Washington and Ottawa dreamed about. Investors cimbed aboard the EV bandwagon, buying into not only the EV makers but also the startups focused on building out a charging network to replace gas stations, again fueled by government largesse.

How has that played out so far? Chargepoint Holdings (CHPT), a first mover in building a network of EV charging stations, has been a cesspool of losses since it went public and has seen its stock drop from $40 a share in 2021 to $2 a share today. Lithium prices peaked last year and have dropped in price by half since. Nickel prices have fallen about 30% in the last year and some nickel mines have been shuttered. Cobalt prices have plunged almost 70% since 2018.

Ford’s efforts to emulate Tesla’s success saw the American legacy automaker lose about $47,000 per EV sold in the fourth quarter of last year. General Motors experience parallels Ford’s losses on EV’s. Worldwide, only Tesla and BYD seem to have profitable EV businesses, with the rest of the automaking industry struggling to find their way.

One ICE vehicle maker did not get caught up in the hype - Toyota Motors. Rather than rush headlong into the EV space, Toyota kept making solid ICE vehicles and adding ICE/EV hybrids to its line up, creating vehicles that combined the flexibility of an electric assist with long range, good performance, and low refueling times. Toyota has been consistently profitable as a result.

As EV sales lagged leftist dreams, car assemblers are shifting gears. GM is adding hybrids to its ICE lineup and cutting EV output, expecting the shift to add to profits materially. Ford is cutting back EV output and adding hybrids, following Toyota’s lead. I think both Ford and GM will succeed with those plans.

With Tesla trading at 45 times net income and Toyota, Ford, and GM changing hands at 11 times for TM and F and 5.5 times for GM, smart money buys legacy automakers shares and watches the EV space for developments.