Using electric cars instead of gasoline/diesel cars is an inevitable trend and is becoming more clearly defined worldwide.
The electric vehicle industry is facing great opportunities for strong development, but at the same time must face unpredictable challenges. So:
What is the current scale of the electric vehicle industry?
What are the prospects for electric vehicle consumption in the coming years?
And will Tesla maintain its number 1 position in the near future?
Việt Hustler will go through the key points of the electric vehicle market with you in this weekend's market analysis article.
Overview of the global electric vehicle market
Market and market share by country/region
Global electric vehicle market:
Specifically in Q3/2023: global consumption 3.7 million electric vehicles ~ 18% of total salesper 1 passenger car sale.
Expected total sales to reach 14 million in 2023 and 16.7 million in 2024.
In Q3/2023:
China is the world's largest electric vehicle market ~ 60% of global consumption.
Sales in China: +27% Y/Y (> 2.2 million vehicles).
Expected sales: reach 8.1 million units in 2023.
Europe is the 2nd largest electric vehicle market ~ 24% market share ~ 800,000 units.
In the first half of 2023, electric vehicles in Europe had an impressive increase +34% Y/Y - a significant jump compared to +9% in the first half of 2022
The US ranks 3rd in sales ~ 13% of global consumption ~ 815,000 units consumed in the first 6 months of 2023.
Market share by company
Market share of suppliers:
From Q4/2021 to Q3/2023: Tesla has always maintained the number 1 position with market share ~ 20%.
However, the market share of the rival from China — BYD has continuously increased and as of Q3/2023, BYD has caught up with Tesla!
BYD's 2023 vehicle sales were 1.57 million units, up +73% Y/Y and equivalent to 87.1% of Tesla's sales.
In Q4/2023, BYD's sales surpassed Tesla's.
→ If BYD maintains this performance, the throne of the global electric vehicle industry will soon change hands.
Ranking 3rd in the electric vehicle market is Volkswagen Group, with 0.77 million vehicle sales in 2023, equal to ~1/2 of BYD.
SWOT analysis of the electric vehicle market: from a business perspective
1. Strengths (Strengths)
Strong investment capital => demonstrates the interest of investors
In 2020, investment in electric vehicles reached 139 billion USD.
Forecast for 2025: investment capital could reach up to 357 billion USD > investment in renewable energy.
Technological development => promotes the ability to improve product quality
The development of electric vehicle production technology has helped reduce product costs and improve performance. For example:
Lithium-ion battery costs have decreased more than 10 times from 2013-2023 and are expected to continue decreasing in the coming years.
2. Weaknesses
Higher cost than traditional cars
58% of respondents said they feel that electric vehicles are still too expensive.
Hyundai Kona EV 2023 is 51% more expensive than the corresponding gasoline model.
However, in recent years, automakers have found ways to improve more affordable pricing to serve the mass market.
Nissan Leaf S 2023 and Chevrolet Bolt EV are priced under 30,000 USD in the US
Increased R&D helps reduce EV battery costs - which typically account for 30-40% of the total price of an EV.
BYD and CATL are testing sodium-ion batteries, estimated to be 20-40% cheaper than conventional lithium.
Dependence on charging stations
Customers cannot make long trips if there are no charging stations along the way.
Although the number of charging stations is gradually increasing, electric vehicles still cannot achieve energy source flexibility.
Takes a lot of time to charge the battery
The fastest charging time for an 18 kWh car battery is 22 minutes, while refueling gasoline takes only 5 minutes!
FYI: To solve this problem, Chinese electric vehicle manufacturer - Nio has developed a battery swap station system that takes only 3 minutes.
Car owners do not buy the battery outright but pay a monthly fee for renting and swapping batteries.
3. Opportunities
Governments offer many financial incentives, tax credits, and subsidies to promote electric vehicle use….
…. because every government faces pressure on environmental issues or energy/technology competition!
FYI: The Chinese government spent ~ 57 billion USD to support electric car purchases from 2016 to 2022, about ~5 times the amount spent by the US government.
In June 2023, Beijing announced new tax reductions for 4 years, applicable until 2027:
As of the end of 2022, the total amount of vehicle purchase tax exemptions and reductions exceeded 200 billion CNY, expected to exceed 115 billion CNY in 2023 alone.
4. Threats (for existing businesses)
Entry of new businesses
Ford is investing 50 billion USD to develop and manufacture electric vehicles: plan to produce 2 million units/year by the end of 2026.
Trade protection policies of countries
For example: The US Inflation Reduction Act — every buyer of an electric vehicle or environmentally friendly vehicle manufactured in North America will receive a federal tax credit worth 7,500 dollars.
Laws from local governments lead to an unfair competitive environment for foreign businesses.
Many automakers are still not giving up on the market with ~1 million EV consumption/year, willing to spend billions of USD to comply with the new Act.
Electric vehicle industry outlook for 2024
Global: Electric vehicle market is forecasted to grow +27.1% in 2024, ~ 17.5 million electric vehicles sold.
Only in China: Sales are expected to reach 9.1 million units ~ 40% of total light vehicle sales.
Falling battery costs will continue to drive BEV (battery electric vehicle) sales in the small car market.
PHEV (plug-in hybrid electric vehicles) will continue to gain market share in the next 2-3 years due to cost efficiency and stronger adaptability.
In Europe: The light vehicle market is projected to maintain growth of 2%-3% in 2024, of which EVs account for 24.2% market share ~ 3.9 million units.
In the context of slowing BEV demand, shifting to PHEV could partially compensate for the electric vehicle market.
FYI: The European market, especially Germany, EV sales slowdown due to sharp decline in EV battery development capacity as costs are too high and government no longer subsidizes
North America: expected to grow +26.8% to 2.2 million units, but market penetration rate is 12.5% - lower than China and Europe.
FYI: Update on Tesla's Q4 earnings and valuation
Tesla's Q4 FY23 earnings results
Revenue up 3% Y/Y to 25.2 billion USD (0.6 billion USD below expectations).
Gross margin 18% (-6pp Y/Y).
Operating margin 8% (-8pp Y/Y).
Capex up 24% Y/Y to 2.3 billion USD.
Free cash flow +45% Y/Y to 2.0 billion USD.
Non-GAAP EPS: 0.71 USD (0.03 USD below expectations).
FY23 production volume: 1.84 million vehicles (+35% YoY)
FY23 deliveries: 1.81 million vehicles (+38% YoY)
Model Y was the best-selling car globally in 2023, with 1.23 million units sold.
Strong demand in Europe and China
Tesla's market share in North America has reached 4%, showing continuous growth. However, the growth rate is showing signs of slowing, especially in Europe.
Vehicle price cuts affect margins but are necessary to balance production and supply
Production costs continue to decline thanks to improvements in production processes
Energy segment margins continue to surpass the EV segment since Q2/2023 and are forecasted to continue so in the future
With 29.1 billion USD in cash, the highest in company history, Tesla can easily weather economic crises in the near future, if any occur.
Development trends:
Demand has started to stall and may continue to decline in 2024
Tesla will continue to pursue price reduction policies to balance supply and production
Steve Le, Founder Viet Hustler: "Tesla has an advantage over competitors thanks to Economies of scale through simplifying the vehicle lineup and production volumes; proactively cutting prices when demand slows to avoid reducing output and changing the supply chain-production structure is a correct long-term decision. This also puts enormous pressure on competitors, especially in the US market."
The next expansion wave will come in 2025 when demand returns and Tesla launches a new affordable model expected at around $25,000
Focus on boosting the energy segment and energy storage products
Steve Le, Founder Viet Hustler: "Energy and Robotics are Tesla's two main expansion platforms, with the AI Robotics segment not yet truly commercialized, Tesla's energy segment could unlock enormous potential for the company's value in the next 10 years, as the EV consumer market and investment environment reaches saturation."
Competition
BYD will become Tesla's biggest rival - Viet Hustler's speculation
In 2023 BYD sold 1.6 million vehicles, lower than Tesla's 1.8 million but surpassed Tesla in Q4
BYD to double showrooms in Europe in the near future with a target of 250,000 vehicles in international markets in 2023
With Tesla having to cut prices in the Chinese market recently, the price war has gradually weeded out weak companies, leaving market share to large domestic firms
BYD in particular is a Chinese company and China is the cradle of Economies of Scale
China's domestic electric vehicle market is developing extremely rapidly with the Chinese government clearly showing its stance to support competition for domestic enterprises
Comments on Tesla stock valuation:
Steve Le, Founder Viet Hustler:
From a business perspective, Tesla continues to be a very well-managed company with extremely sound short-term decisions, including price cuts in Q3 & Q4 to squeeze small businesses and maintain competitive advantages.
In particular, Tesla continues to improve processes to drive down production costs
Tesla can still further improve production costs based on the “vertical integration” of the entire supply chain of materials and components
The decline in sales and profits compared to expectations in Q4 is largely due to market factors rather than the product, with this trend forecasted to continue in 2024. Tesla's stock price has fallen, reflecting investor sentiment after the financial report.
However, Tesla's advantages in the electric vehicle market remain unchanged, with the company's financial stability continuing to be maintained with cash reserves up to $29.1 billion
The company's development potential is also extremely large as the growth rate of the energy segment will open up a new market when the consumer and investment electric vehicle market becomes saturated
Even after the energy segment, the AI/Robotics segment will also enter commercialization, opening up new opportunities.
The danger from BYD's competition is concerning but the current market is still wide enough for both companies, with BYD not having much presence in the international market yet.
However, the threat from changes in China's competition policy or subsidies/tax reductions for electric vehicles by the US government is the biggest concern in 2024.
Tesla stock at the $165-$180 price range is a good opportunity rated as “BUY” by Steve. However, investors will mostly have to be patient in 2024 as electric vehicle demand declines due to macroeconomic conditions and await Tesla's launch of a super-cheap electric vehicle model in 2025.
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