Will Tesla win the EV price war?

Large-scale economic factors that support growth include a worldwide effort to reduce carbon emissions, and the electric vehicle (EV) sector is projected to experience an annual growth rate of 17.3% until the end of the ten-year period. Acting as a prominent player, Tesla is spearheading the movement to lower prices, resulting in difficulties for its competitors within the industry.

Electric vehicles are the way forward when it comes to transportation. As stated in a recent article from the New York Times, upcoming US laws may guarantee that 2032 will see around 66% of all car sales in the nation consisting of electric vehicles. Additionally, a number of states have already implemented regulations that will gradually prohibit the sale of new internal combustion engine (ICE) vehicles in the near future.

Sylvia Jablonski, CEO and chief investment officer at Defiance ETFs, expressed that the progress in the electric vehicle industry is supported by worldwide initiatives to diminish carbon emissions, advancements in battery technology, and strong governmental rewards, in her conversation with Opto.

Vantage Market Research predicts that the electric vehicle (EV) industry worldwide will experience a Compound Annual Growth Rate (CAGR) of 17.3% from 2023 to 2030, reaching an impressive value of $693.7 billion.

The worldwide trend towards reducing carbon emissions is a significant advantage for this concept.

According to statistics provided by Exponential Roadmap in 2019, it was found that the worldwide transportation industry discharged 8.6 gigatons (gt) of carbon dioxide annually, which amounts to roughly 16% of the total global emissions.

According to Gabriela Herculano, the head honcho at iClima Global Decarbonisation Enablers UCITS ETF [CLMA], she mentioned to Opto that we could potentially see a reduction of about 1.3 billion metric tons of CO2 equivalent by 2030, out of the total goal of 30 billion metric tons, solely from the use of electric vehicles (EVs).

According to Herculano, car manufacturers specializing in electric vehicles like Tesla, BYD, XPeng, Nio, Rivian, and Lucid hold the most promise for reducing carbon emissions. Additionally, these companies enjoy the benefit of not being burdened by past complications associated with the production of traditional internal combustion engine vehicles.

In reality, the transition to electric fleets is causing trouble for some of the well-established car companies. According to Kieran Kirwan, the director of investment strategy at ProShares, "major automobile manufacturers are actually experiencing financial losses when it comes to producing electric vehicles."

Standardizing Public Chargers

Tesla, a well-known brand in the field, is taking significant steps in the direction of establishing a uniform charging standard throughout North America. In May, Ford [F] revealed its plans to allow its electric vehicles (EVs) to utilize Tesla's fast charging Supercharger network through Tesla's North American Charging Standard (NACS) introduced in November 2022.

Since that time, excitement for the plan has rapidly increased. General Motors (GM) were the subsequent company to agree to make their electric vehicles (EVs) compatible, thus giving the network a powerful position in the electric vehicle market in the United States. Tesla, Ford, and GM combined account for 72% of this market. In the subsequent weeks, Polestar (PSNYW), Rivian, and Volvo (VOLV-A.ST) also became part of the standard. Mercedes-Benz (MGB.DE) joined in July, becoming the first German automaker to participate.

The growth of the charging network is crucial for widespread acceptance of electric vehicles, as stated by Konrad Sippel, the research leader at Solactive, a company that provides indices for the Electric Vehicle Charging Infrastructure UCITS ETF [ELEC.L].

Sippel explained to Opto that at present, electric vehicles are primarily bought by affluent pioneers who usually have the convenience of charging their EVs at home or work. This implies that they depend less on public charging facilities for their everyday usage.

Based on EU research recommendations that propose having at least one public charging station for every 10 electric vehicles (EVs), Sippel argues that the current number of public charging stations needs to increase significantly, by around 15 to 20 times, in order to accommodate the expected growth of the EV fleet by 2030.

Tesla Leads In Setting Prices

While conventional car manufacturers face challenges in making profits from their electric vehicle offerings, it is crucial to lower prices for wider adoption of EVs. Tesla has been at the forefront of this initiative, as the company has been actively seeking to decrease the costs of its vehicles since the latter half of 2022. This strategy, however, has often come at the expense of the company's operating margin.

Tesla's competitors are feeling the effects of this battle over prices. Lucid, a high-end electric vehicle manufacturer, mentioned in a production update in July that their revenue for the first quarter would be lower than anticipated due to the influence of Tesla's new pricing approach. Additionally, production volumes are being hindered by problems in the supply chain. As a result, Lucid's stock experienced an 11.8% drop on July 12th as a response to this update.

Lucid faces a predicament as the decline in prices of electric vehicles becomes troublesome for them. On the other hand, Rivian is encountering legal troubles due to the surge in prices. A judge in California has ruled that a gathering of shareholders who are suing the company will have the opportunity to present their case in court. According to the lawsuit, Rivian deceived investors by keeping them in the dark about the undervalued pricing of their R1T pickup truck and R1S SUV leading up to the company's initial public offering in 2021.

Battery Shortage

Electric vehicles (EVs) rely heavily on their batteries for their performance, but they may encounter obstacles in the form of supply issues in the foreseeable future. These challenges could potentially hinder the progress of this concept.

According to Kirwan, the automotive industry experienced a 65% surge in the need for lithium ion batteries in the year 2022. However, he predicts that by 2030, there will be a considerable deficit in the availability of these batteries. Furthermore, he estimates that by 2035, the supply will fall short of the demand by more than 20%.

Lithium is not the sole mineral facing effects. The ProShares S&P Global Core Battery ETF [ION] monitors a portfolio consisting of miners who extract lithium, cobalt, and nickel. Kirwan asserts that these metals are all anticipated to confront a shortage in supply due to an overwhelming demand.

Jacob White, a professional overseeing ETF products at Sprott Asset Management, included rare earths, silver, graphite, and manganese to the inventory of substances that play a crucial role in electric vehicle (EV) batteries. He particularly emphasized the importance of graphite, as it constitutes one of the heaviest components within the EV battery.

Reiterating the narrative of lithium, White expressed to Opto that, "Within this group of minerals, a consistent pattern persists: it is improbable for the supply to align with the anticipated demand."

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Drive The EV Revolution With Innovative Solutions

There is a possibility that new technological advancements could help alleviate the imminent shortage of supply by reducing the demand curve.

Kirwan suggests that currently, there are ongoing trials to explore alternative battery compositions that would necessitate lesser amounts of these fundamental battery metals.

Progress in battery chemistry also has the ability to revolutionize the capabilities of electric vehicles. In February, scientists at the Illinois Institute of Technology achieved a significant milestone in the advancement of lithium air batteries, a power supply option that is more effective and could potentially replace lithium ion batteries.

Toyota recently introduced its solid-state battery technology, boasting a remarkable range of 745 miles and a speedy charging time of only 10 minutes. However, it is essential to note that this advanced battery technology involves a higher usage of lithium.

Investing In EV Stocks: A Guide

ETFs, also known as exchange-traded funds, provide a cost-effective and broadened approach to investing in a range of stocks that revolve around a specific subject.

Focus On: Global X Autonomous & EV ETF

The DRIV ETF follows the Solactive Autonomous & Electric Vehicles Index. As of June 30th, 36.2% of the fund's holdings are in the consumer discretionary industry, 30.7% are in the IT sector, 15.3% are in the industrial sector, 12.8% in materials, and 5.0% in communication services.

The past six months have witnessed a significant increase of 21.6% in the value of DRIV.

The Electric Vehicle Charging Infrastructure UCITS ETF follows the Solactive Electric Vehicle Charging Infrastructure Index, giving investors access to companies that will profit from the growing need for EV chargers. As of June 30th, the majority of the ETF's investments are in US companies (48.78%), but it also has substantial holdings in companies from the Netherlands (14.64%), South Korea (9.40%), Spain (8.98%), and several others.

In the last half-year, the fund has experienced a decrease of 19.2%.

The iShares Self-Driving Electric Vehicle and Technology ETF (IDRV) follows a benchmark that includes businesses engaged in electric vehicles, battery advancements, and self-driving technologies. As of July 11th, a significant portion of its investments, namely 60.56%, are allocated to consumer discretionary sectors, while 17.36% are directed towards materials, 14.30% in industrials, and 7.22% within the IT sector.

The IDRV has experienced a significant increase of 16.6% within the last six months.

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