I’ve got as few things on my mind today, so I’m going with the tried and true digest format…
*****Critical Mass for EVs
On September 11, I told you that global electric vehicle (EV) sales are hitting critical mass right now. Here’s the chart I shared, showing EV sales for the second quarter…
Between April and June 2023, EV sales in the U.S. were up 48% over the same period from 2022. That’s on par with the year-over-growth rates from Europe. But the really important thing to notice is the overall percentage of all new car sales that are EVs – 7%.
Of course you could look at that meager 7% market share and think, yes EVs are a niche product that have a long way to go before hitting real mainstream appeal.
OR – you could look at that 7% and say, wow, there’s a lot of upside for EV sales in the U.S.
I’d advise you to focus on the trend for U.S. EV sales. Because the trend is, as they say, your friend.
Third quarter EV sales numbers for the U.S. were released earlier this week. Over 300,000. I don’t why the organizations that report these things can’t just report the actual number. Maybe they’re still counting…
At least they were specific about the market share for EVs in Q3 – 7.9%. That’s 13% sequential growth. Keep it up and a year from now, the market share for EV sales in the U.S. will have darn near doubled – to 12.8%.
That ladies and gents, is critical mass.
Now, obviously, EV sales growth won’t necessarily move in a straight line. There are plenty of threats to EV sales, and auto sales in general. The UAW strike is starting to bite. And even though high interest rates haven’t been much of a factor to this point, borrowing costs could become a factor. And if the U.S. does indeed tip into a recession, auto sales will fall.
This is why averaging into EV stocks makes sense. Buy some shares now, buy some next month, buy more on weakness…
As for which EV stocks to buy, it’s not the incumbent automakers, FORD (NYSE: F) and GM (NYSE: GM). Sure they’ll sell a lot of EVs, but it will come at the expense of internal combustion engine (ICE) cars. They may enjoy a bit better margins, but total volumes are not likely to see substantial gains…
In fact, Ford and GM stand to lose market share to Tesla and other upstart EV companies. And we could certainly argue that smaller rivals are eating into market leader Tesla’s share. Tesla’s share of the U.S. EV market has fallen from 62% in the first quarter to 50% in the third quarter. Some of the decline can be chalked up to lower production volumes due factory closures for upgrades.
Some analysts are predicting that the imminent launch of the Cybertruck will mean Tesla recovers lost market share.
I think the upstarts Fisker (NYSE: FSR) and Rivian (NASDAQ: RIVN) are the EV stocks to own.
Rivian shares just got whacked down from the $24 range down to around $19 after it completed a convertible bond sale to raise cash. But as it now stands, Rivian is trading for less than 3X 2024 revenue. That is not outrageous at all.
Fisker has been basically stuck at $6 a share since April. It’s a $2 billion company that is expected to do nearly $3 billion in revenue next year. And unlike Rivian, who is building its own factories, Fisker is outsourcing its manufacturing, mainly to Magna International (NYSE: MGA). Magna assembles cars for Mercedes, BMW and several others. To me, that suggests that quality and production estimates are less likely to be a problem.
*****The Debt Problem
If you were watching the stock market yesterday around 12:45 ET, you were probably saying “wait, what?” like I was. Stocks were having a nice rally, the S&P 500 was up around 4,385 when it suddenly turned and plummeted 60 points in less than two hours.
Yes, the latest example of GOP dysfunction had just reared its head as the leading candidate to become the next Speaker failed to get the needed support and announced that he was removing his name from consideration…
But a much more significant event was taking place at the same time. A Treasury auction for $20 billion of 30-year notes started at 1 pm. And it was pretty much a disaster. Buyers demanded the highest yield since 2007 to lend money to the U.S. government.
There’s a lot to unpack here. There’s the Fed, who seems to still be promising more rate hikes, which will push yields higher. Why buy a 30-year bond at 5% if it’s gonna be 5.5% in a few months?
There’s a fairly large swath of the global economy that is trying to wean itself from the U.S. dollar. China’s buying fewer Treasury bonds. And the Fed isn’t buying any.
Americas’s interest expense in its debt has doubled in the last 3 years:
And there’s no way to dig out of the hole when deficit spending has been the government’s MO for the last 23 years.
For most of those 23 years, the government’s debt wasn’t a problem. Because rates were low and the Fed’s QE made it a ready buyer for 15 of those years.
There’s no easy fix. A balanced budget is a fantasy. You can bet that no one has the political will to cut spending by ~20% overnight. The U.S. economy can’t go strong enough to get us out of it. Raising taxes is a non-starter.
At some point, maybe a year or two from now, the Fed is gonna restart QE and buy Treasuries again.
That’s it for me this week, take care, have a great weekend and I’ll talk to you Monday…