Electric vehicle (EV) makers are facing a conundrum due to the uncertain outlook of the EV market in 2023. On the one hand, governments worldwide are pushing for a transition to green, with plans to roll out bans on the sale of new fossil fuel-powered cars across several cities within the next decade, which is encouraging more consumers to switch to EVs. On the other, the current uncertain geopolitical and energy outlook has sent much of the world into a recession, with soaring inflation and concerns about energy security, meaning that many consumers are reluctant to spend. While this should be prime time for EV uptake, ongoing economic and political uncertainties have made the EV outlook for 2023 less clear.
Despite an initially positive outlook, EV stocks fell in 2022 due to several challenges to manufacturing and consumer uptake. As interest rates increased and consumers feared a potential recession – with high inflation rates being seen worldwide – the EV market began to falter early in the year. In addition, automakers continued to see supply chain disruptions, following the pandemic, as well as rising lithium prices, and greater competition from manufacturers entering the EV market.
And EV stocks could face another difficult year due to the ongoing Russia-Ukraine conflict and general economic uncertainties worldwide. One company to suffer from a multitude of external challenges was Tesla, which saw its shares plummet in 2022. By December, Tesla shares had dropped by over 60 percent from the beginning of the year, equating to around $626 billion of shareholder value. This was largely due to increased competition from well-known automakers, as they launched their own EV models, with even more manufacturers expected to make the shift in 2023. In addition to attracting consumers to new EVs from well-known brands, many automakers are significantly undercutting Tesla’s prices. Jeffrey Osborne, an analyst at Cowen & Co., explained: “This whole narrative about Tesla being a leader in everything they do is waning.” He added, “Tesla shares tend to work best when you can create a feverish narrative about something coming. It is unclear what is to be excited about it in the new year.”
This has led Tesla to slash its prices this month over fears of an EV recession. Until recently, Tesla looked like it would come out on top, as the forerunner in the EV market to which everyone was making the switch away from petrol. Yet, things are becoming less clear as the world faces major political and economic disruption, which could hinder EV uptake significantly in 2023. The potential for a recession in the EV industry is being compared to the dot-com recession of the early 2000s. An analyst from an LA-based investment firm Wedbush, Dan Ives, explained: “Many dot-coms didn’t make it… There’s no stress test for a severe recession for an industry that’s in its infancy.”
In China, one of Tesla’s biggest markets, sales of its EVs fell by 44 percent in December from November levels. Tesla is now rapidly finding new ways to battle the potential recession and come out on top. This month, Tesla once again slashed its prices in the U.S. and European markets to encourage greater uptake. In the U.S., this could make the company eligible for EV tax credits and help boost sales to consumers sitting on the fence about making the switch. In Germany, Tesla’s popular Model 3 is now priced at a level comparable to Volkswagen’s entry-level electric car, the ID.3.
But newer EV companies may not be able to adapt to market demands as quickly as major players, such as Tesla, in the face of a recession. Firms such as Lordstown Motors, Faraday Future, and Canoo are fighting to keep their cash flow alive during an international economic crisis, looking to investors for more funding, as well as cutting costs. And while EV sales will inevitably rise, as countries ban the sale of fossil fuel-powered cars, many EV makers will have to weather the financial storm and come out the other side to ensure their position in the EV market of the future.
Despite the uncertainty, EV production is expected to continue rising throughout 2023, mainly due to the rollout of existing EV strategies by several major automakers. Companies including Mercedes, Ford, and General Motors all have plans to begin production of new EV models in 2023 and 2024, as they rise to compete with the likes of Tesla and other EV majors. Around 74 different EV models are expected to be available on the North American market by 2025, and beginning production now is the only way to ensure these companies solidify their position in the EV market as uptake increases.
As automakers begin to pick up the pace of their EV production and launch new models, 2023 could well be the year of the cheap(er) EV, with car manufacturers encouraging uptake by spurring greater demand. This will be supported by subsidies and tax breaks on EVs in some countries and clean energy policies in others, such as the U.S. Inflation Reduction Act.
Following a year of ups and downs, we can expect to see further EV stock price volatility throughout 2023. But with long-term EV strategies coming into play from several major automakers, EV production is expected to accelerate this year. Further, greater competition will likely make Tesla and other EV firms cut their prices in a bid to boost consumer demand for their EVs, even in the face of a global recession.
By Felicity Bradstock for Oilprice.com
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