When Tesla slashed the prices of some of its electric vehicles at the start of the year, it shocked the auto industry and triggered a price war – weeks later, Ford also slashed the price of its Mach-E. The event could have created a compelling entry point for investors who have been on board with the long-term shift to electric vehicles. “It’s really become a stock picker’s market,” said Garrett Nelson, an equity analyst at CFRA. Electric vehicles are becoming more popular in the US but there is still a small proportion of automobiles on the roads. In 2022, EVs will make up about 5% of all vehicles sold in the US, according to data from Edmunds. This is almost double sales from just a year ago, showing accelerated growth in the segment. “It’s expected to grow significantly,” said Jessica Caldwell, executive director of Insights at Edmunds. He added that this means a lot of new products are coming on the streets. The increased competition is already having an effect. Tesla is still the winner in new EV sales, but its lead is shrinking. In 2022, Tesla will make up about 59% of new EV sales, down from 66% last year. Brands Hyundai/Kia, Ford and Rivian all increased market share last year. “We believe electrification is an imperative,” said Brian Sponheimer, portfolio manager at Gabelli Funds. Tesla’s price cuts to reclaim market share could be part of a strategy to take back market share in the US and abroad. The automaker slashed the price of all new vehicles by up to 20% in the US and cut prices of some models in Europe as well. The move follows a similar price cut in China to woo buyers. In addition, lower prices in the US potentially help the cars qualify for federal EV tax credits available through the Inflation Reduction Act, which is another incentive for potential consumers. Some analysts applauded the move. Berenberg upgraded shares of the automaker to buy, saying the cuts are part of a larger strategy, even if they are profitable. Dan Ives of Waybush said in a January 19 note that the price cut is already a “huge success” in China. Of course, low prices will eat into profits, which will be a problem if volume doesn’t increase substantially. Per a Jan. 17 note from John Murphy at Bank of America Vehicles, revenue could fall 10% to 20%. Also, he predicts that Tesla’s volume will increase by 53% in 2023. The number of consumers and interest in Tesla vehicles grew, according to data from Edmunds. Tesla’s on-site shopper views increased from 1.9% to 4% in a week, and the Tesla Model Y became the second most researched vehicle on the site, up from 70th the week before. RBC Capital Markets raised its price target on Tesla to $233 on Monday, or up 17% from Friday’s close, citing strong consumer reaction to Tesla’s price cut. A few weeks later, Ford responded by lowering the price of its Mustang Mach-E crossover, the vehicle that competes mostly with Tesla’s Model Y. Due to the cutbacks, not all Mach-E models will be profitable on a per-unit basis. Still, Ford is nearly doubling production from 78,000 vehicles to 130,000 annually to stay competitive. However, General Motors has decided to keep its prices steady for now. Asked about the price cut, CEO Mary Barra said on Tuesday on a call with analysts, “When we see interest in our strong product portfolio and the prices that we’ve already announced, we feel That we’re in good shape.” Tesla and Ford. “Even in the first month of the year, we’ve seen a lot of customer interest in our products.” It remains to be seen how the price cut will impact sales in 2023, but it is expected to be an issue for automakers. “It’s a dramatic headwind in the first half of the year,” said Gene Munster, managing partner at Deepwater Asset Management. “I think it’s going to be mediocre.” Competition Stirs Some analysts believe the increased competition is eating away at Tesla’s market share. Others see its first-mover advantage and popular brand as keys to future growth. According to Nelson, with dozens of new vehicles hitting the market in the coming years, it could reach a point of oversaturation that would overwhelm consumers. “You’re going to see a lot of traditional automakers and newer EV makers like Lucid, Rivian, Fisker and others really struggle in the coming quarters.” He has buy ratings on Tesla, buy on Ford and sell ratings on GM shares. There is also the question of construction and access. While traditional OEMs have large established factory networks and capital behind new developments, Tesla has been focused solely on electric vehicles and built its factories for the purpose. “Tesla has an advantage when it comes to the fact that they’re building from the ground up,” Munster said, adding that he thinks it allows them to build cars cheaper than competitors. Which is an advantage for the customers. However, Tesla may be lagging behind in some areas. For one, its vehicle line-up is getting old, according to Caldwell. While consumers await the Cybertruck, there aren’t other new models on the horizon. And, there are still issues with electric vehicles that make them impractical for large groups of consumers, said Mike Ward, an analyst with the Benchmark Company. He has buy ratings on GM and Ford. For example, if you live in Vermont and want to go skiing, that’s not very practical, he said. “There aren’t enough charging stations, you don’t get range because you lose a lot of range at high altitude, high speed and in cold weather or unstable weather,” Ward said. In addition, Tesla is not well positioned to capitalize on the growth of electric vehicles in the commercial sector, such as fleets of commercial pickup trucks and vans. According to Ward, General Motors and Ford control the majority of that market in the US and Ford currently has the best electric pickup truck. Ward said, “Your plumber who has a pickup truck isn’t going to buy a Cybertruck for $100,000.” It is also important to remember that existing automakers still have a monopoly on conventional vehicles and offer other forward-looking technologies such as hybrid cars or those running on diesel fuel or hydrogen. ,[Traditional auto companies] have a diverse lineup and diversity is important for a number of reasons,” Sponheimer said. More cars for sale means you’re likely to reach more consumers with a wider range of needs. “Those other conventionally powered vehicles , which are going to be with us for decades to come, can help ease the volatility that will come with the electrification program.” THE BREAKDOWN FOR INVESTORS What investors must decide for themselves is how automakers will ultimately benefit consumers. will generate the most value and continue to drive market share, Munster said. For some, that means sticking with Tesla through its ups and downs. It’s generally well-liked — Issues with CEO Elon Musk — and one of the best-loved auto companies on Wall Street. Roughly two-thirds of analysts who cover Tesla call the stock a buy. Bulls still see incredible upside Morgan Stanley’s Adam Jonas has a $220 price target on the shares, meaning It is expected to rise about 16% from Friday’s close. TSLA YTD Line TSLA Chart ytd Others may want to take a more traditional approach. “I think it’s entirely possible for someone to say ‘I’m going to own Ford even though they’re not there today because I think they’ll have the best value and the best option,'” Munster said. General Motors also offers a solid traditional alternative, and investors looking for companies with a lot of growth outside the U.S. should also consider Toyota, Hyundai, Kia or Mazda. Traditional companies are also more likely to pay dividends, an important consideration in today’s volatile market. Ford and General Motors both pay dividends — GM is around 1% and Ford is 4.4%. GM YTD Line GM YTD This is important because even if the stock price does nothing, investors will still see that payout return. “We really like companies that pay dividends, have strong balance sheets, generate strong cash flow and can continue to return cash to shareholders,” Nelson said. F YTD line Ford is thinking beyond the ytd car According to Sponheimer, there are also myriad ways to invest in the trend to protect yourself from the risk of buying shares of startups that could go down from a worthless vehicle. “Where we’re really focused as a firm is on mitigating that product risk and choosing the technologies that we think are going to be important to all automakers,” he said. This includes investing in companies that make things like axles and drivelines for trucks and SUVs, such as Dana, an auto supplier. The firm also likes BorgWarner, another supplier, and Garrett Motion, a smaller manufacturing company that makes turbochargers. And it named ChargePoint, a maker of EV charging stations, as one of its best ideas for 2023. ecosystem,” he said. There is also huge potential in firms that make batteries, a key component of electric vehicles, which are seeing share prices rise. Goldman Sachs has buy ratings on several battery makers, which they see as driving EV development. Including Freyr Battery, Sunrun, and Enphase. Another way to get the upside of an upstart like Tesla while potentially balancing it with stability is by investing in an electric vehicle-focused exchange-traded fund. The Global X Lithium & Battery Tech ETF, which includes Tesla and Rivian, is up nearly 18% year to date. A broader fund, the iShares Self-Driving EV & Tech ETF, is up more than 22% this year. It also includes Toyota, General Motors , Ford as well as Apple and Alphabet. The KraneShares Electric Vehicles and Future Mobility Index ETF has also gained nearly 18% this year and includes Tesla, lithium maker Albemarle, auto tech supplier Aptiv and more. -CNBC’s Michael Bloom contributed reporting.
Tesla has started a price war in electric vehicles. Investors should see this as an opportunity
