Tesla 'Is The Only Investable' EV Play, Says Analyst, As Electric Vehicle Industry Navigates A Tough 2023: Year In Review

Electric vehicle stocks came under significant selling pressure in 2023 as conditions remained inclement for production as well demand. That said, shares of market leader Tesla, Inc. TSLA rode on a strong first-half performance and doubled during the year.

Here are the key themes that dominated EV space during the year:

Tesla Goes Aggressive With Pricing: With the Fed continuing to take interest rate higher, Tesla smelled trouble and opted to go with the strategy of deep price cutting for most of the first-half of the year. The move produced a ”sugary high” for the stock, which rallied through the first half of the year. Demand, however, proved to be inelastic, not increasing by much.

However, these steep price reductions forced competing startups to a critical point where they had to choose between matching the cuts and exacerbating their already substantial losses, or maintaining their prices and risking a significant decline in revenue.

For Tesla, the price cuts turned out to be a margin-squeezing exercise. The company’s auto gross margin, excluding regulatory credits – aka core auto margin, continued to contract this year. From just under 25% in the fourth quarter of 2022, this metric slid to 16.3% in the third quarter of 2023. As a consequence, Tesla reported a double miss in the quarter.

Rivian’s Pushes Ahead From Startup Crowd: Other than Tesla, the only U.S. electric vehicle stock to end in the green was Rivian Automotive, Inc. RIVN.

Chart Courtesy Of Benzinga

When the rest of the startup ecosystem was cutting production amid difficulty in ramp-up and waning demand, Rivian maintained its production forecast for the year, in fact nudging it up slightly in the back-end of the year. The company now expects full-year production of 54,000 units.

The Irvine, California-based company also managed to keep costs in check, and in early November, it narrowed its full-year adjusted EBITDA loss guidance to $4 billion. Rivian ended the third quarter with $9.13 billion in cash, cash-equivalents and short-term investments.

See Also: Best Electric Vehicle Stocks

Slowing EV Adoption: Despite regulatory mandates put in place by some governments across the globe for transitioning to EVs, the industry faced a setback in 2023. Global EV adoption grew, but at a slower pace in 2023 amid a lack of affordability and charging infrastructure bottlenecks.

Looking ahead, the industry is expected to see a further slowdown in 2024. Investment bank Argus expects battery EV and plug-in hybrid sales growth in the U.S. to slow from 50% in 2023 to 37% in the new year, to reach 1.94 million units.

Pinpointing the reasons for the slackness seen in 2023, Gary Black, the co-founder and managing partner of Future Fund, attributed it to a combination of higher interest rates, challenges in scaling up production, and consumers’ range anxiety impacting the market.

Black, however, is optimistic about the outlook. He expects U.S. EV adoption rising from 12% currently to 20% in 2024, increasing further to 60% by 2030. This growth is projected to occur as consumers become more familiar with the ease of charging EVs and as concerns about range anxiety diminish.

EV Companies Make Beeline To Tesla Charging: Reflecting on range anxiety, it’s notable that this year both pure-play EV makers as well as legacy automakers warmed up to Tesla’s North American Charging Standard, as they began to see NACS adoption as a win-win proposition. Rivian, Lucid Group, Inc. LCID, General Motors Corp. GM and Ford Motor Co. F all joined the bandwagon to make life easier for their customers.

The count of adopters for NACS rose dramatically this year, from only one to 28, a change analysts believe could be a significant source of income for Tesla.

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Legacy Automakers Trim EV Ambitions: The year put a speed breaker on the legacy automakers’ ambition to expand their wings into the EV arena. Stymied by the United Auto Workers’ strike that forced Detroit’s auto giants to make additional concessions and the EV demand slowdown, they scaled back their EV plans.

Midway through the year, Ford delayed its goal of reaching an annual EV production target of 600,000 units to 2024, and subsequently, it further reduced its all-electric F-150 Lightning pickup truck production target by half.

Looking Ahead….

As the EV industry is in a state of flux, Tesla “is the only investable EV company” now, fund manager Black said in exclusive comments to Benzinga. No one else, except BYD Company Limited BYDDY BYDDF, has figured out how to make money, he said.

The analyst also sees the shakeout in the industry to continue, with Tesla, BYD and Rivian the likely winners and everyone else losing. He sees input costs moderating. Tesla’s average selling price is down 17% year-over-year in 2023, but its cost of goods sold has dropped by a more modest 8%, he said.

Black sees Tesla maintaining EV prices unchanged in 2024. Given the likelihood of interest rates dropping and EV tax credits, taking effect on Jan. 1, 2024, he does not see the need for more price cuts.

Outlining his EV stock picks for 2024, the fund manager said Tesla is best positioned to capture the surge in EV adoption. The Cybertruck launched in late-November, which provided the company a new addressable market, and the likely launch of a $25,000 EV in early 2025 will provide the Elon Musk-led company a better grip on the EV market, he said.

Rivian will emerge a strong number two, with its focus on SUVs and the most profitable pickup segments, Black said. He expects the company to become gross margin positive in 2024 and EBITDA positive in 2026.

The KraneShares Electric Vehicles and Future Mobility Index ETF KARS ended Friday’s session down 1% at $25.70, according to Benzinga Pro data. For the year, the ETF fell 7.85%.

Read Next: 2023’s Top Dogs: Nvidia, Meta Lead S&P 500 Charge In Tumultuous Year — But Which ‘Magnificent Seven’ Stock Will Be 2024’s Runaway Winner?

EV Stock Performances For Year

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