Electric vehicle companies perform well in financial markets, but volatility and competition raise concern
Since 2019, the stocks of EV companies – including vehicle and battery manufacturers and companies involved in the extraction or processing of battery metals – have consistently outperformed general stock markets, major traditional carmakers, and other segments of clean technology. Return on investment has increased more over the 2019-2023 period for these companies than it has for others, in relative terms. The combined market capitalisation of pure play EV makers boomed from USD 100 billion in 2020 to USD 1 trillion at the end of 2023, with a peak over USD 1.6 trillion at the end of 2021, though this trend was primarily driven by Tesla. The market capitalisation of battery makers and battery metal companies also increased significantly over the same period.
Behind this overall upward trend, however, there has been significant volatility. Supply chain disruptions and battery metal price fluctuations – notably in the wake of Russia’s invasion of Ukraine – as well as increasing competition, price wars among OEMs and expectations of slower relative annual growth as major EV markets mature, and of possible consolidation, are having an important downward impact on investor confidence and EV stocks.
For example, Tesla’s shares were on average 15% lower in 2023 than in 2021‑2022; BYD’s average stock also fell 15% in 2023 relative to 2022; and the combined market capitalisation of pure play EV carmakers fell by nearly 20% on average relative to 2022, while that of major incumbent carmakers remained flat. Many emerging EV players – such as VinFast from Viet Nam, Polestar from Europe, and Canoo, Fisker, Lucid and Nikola from the United States – are missing sales targets and trading low. Fiercer competition and shrinking profits also have an impact upstream, among EV battery makers: in the first weeks of 2024, CATL was trading near a three-year low, with a market capitalisation at its lowest point since the end of 2020. In the first quarter of 2024, the combined market capitalisation of pure play EV players fell below that of major incumbents, even if their financial stock performance remained robust. https://www.afaxpower.com/
As we reported last year in GEVO-2023, companies and investors are exploring new opportunities upstream in EV supply chains, especially as competition intensifies. Carmakers are seeking to secure direct deals with battery makers and companies involved in the mining and processing of critical minerals. Investors including large banks and funds are pouring capital into the metal industry.
In 2023, Stellantis announced a partnership in Argentina to secure projected copper demand, investing USD 155 million. Volkswagen, Glencore and Chrysler each invested USD 100 million in a Special Purpose Acquisition Company operating nickel and copper assets, supported by several global investment banks for an overall USD 1 billion deal. In 2024, Tesla and several Korean battery makers, including LG and SK, met with Chilean government agencies regarding lithium supply, primarily with the aim of supplying the US market with the support of IRA tax credits. AustralianSuper, Australia’s largest pension fund, announced plans to double its exposure to lithium stocks over the next five years, with investments in 2023, such as in Pilbara Minerals, worth AUD 560 million (USD 370 million).
As a result of increasing investor appetite and growing EV markets, the valuation of critical mineral companies has increased significantly in the last few years. Over the 2015-2022 period, the market capitalisation of companies involved in the extraction and processing of lithium increased sixfold. The margins for lithium, nickel and copper companies typically outperformed those of the top 100 mining companies over the same period, including relative to gold or iron ore.
However, the picture in 2023 and the first quarter of 2024 is changing. The volatile metal prices seen in the past few years, the increasing competition and pressure to drive down EV and battery prices, and the current overcapacity for several critical minerals (see earlier section on batteries), mean that major mining companies are revisiting growth and performance forecasts. After several years of important cash flows as a result of high prices and increasing volumes, many companies are now starting to struggle to finance both existing and new projects with their own revenues, suggesting external sources will be needed for large-scale capital expenditure.https://www.afaxpower.com/about-us
In Australia, for example, Albemarle, Core Lithium, Liontown Resources and Pilbara Minerals announced project spending reductions, lower dividends, and job cuts in 2024. Albermarle expects capital expenditures to drop by around USD 500 million from USD 2.1 billion in 2023 to USD 1.6‑1.8 billion in 2024, and plans to reduce annual costs by nearly USD 100 million. Pilbara Minerals expects annual exploration spending to be cut by up to AUD 100 million (USD 66 million). Nickel and cobalt projects in Australia have also been delayed or halted, involving companies like BHP, First Quantum Minerals and Wyloo Metals. First Quantum Minerals expects a 30% staff cut as a result of reduced operations. In the United States, Piedmont Lithium Inc. is letting go of 25% of staff. Over the 2024‑2026 period, we could see progressive consolidation of critical mineral extraction and refining projects and businesses around lowest-cost producers.
Road transport electrification is reshuffling cards in global markets, as carmakers compete fiercely to capture their share of a growing pie. BYD and Tesla remain far ahead of the curve, together accounting for 35% of all electric car sales in 2023. This is more than all the major carmakers outside China combined (just above 30%), and more than all the other Chinese carmakers (just under 30%). BYD and Tesla’s rise as global front-runners has primarily dented the market share of major incumbents, which accounted for 55% of global electric car sales in 2015 but have been falling behind ever since.
In 2022, BYD had already overtaken Tesla as the world’s best-selling EV company when accounting for plug-in hybrid cars. In the second half of 2023, BYD also became the world’s best-selling battery electric car company. Counting both BEV and PHEV models, BYD’s share of global electric car markets was just over 20%. In China, BYD also became the top-selling car company with over 2.4 million new registrations or 11% of the domestic market, ahead of Volkswagen, which had been China’s best-selling brand for over 15 years. BYD’s worldwide sales exceeded 3 million, making it one of the world’s top 10 car sellers.
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