Elon Musk expressed concerns about the impact of high interest rates on the electric vehicle (EV) market during the conference call that followed Tesla’s third-quarter earnings print on Oct. 18.
Last week, Musk’s concern was mirrored by LG Energy Solution (LGES), a South Korean battery producer that supplies batteries to Tesla, among others. LGES’s chief financial officer Lee Chang-sil warned of slowing EV sales during its conference call and in response, the company saw its shares hit a year-low on Oct. 25, according to the Financial Times.
The Problem: “Investors have been too optimistic about EV demand growth,” executive adviser at Korea Automotive Technology Institute Lee Hang-koo said, adding that “slowing demand growth is coming sooner than expected, especially in the high-end EV market," the publication said.
The cautious outlook from LGES coincides with a broader trend among automakers, including Tesla, General Motors, and Ford, which are slowing down their EV factory expansion plans, foreseeing weaker demand as soon as next year, wrote the FT.
According to the FT, Lee Chang-sil blamed the deteriorating macroeconomic environment, higher interest rates that discourage consumer spending, and slowing growth in Europe, along with an increasing EV penetration rate in China.
The Upside: In response to these challenges, LGES plans to increase production capacity at its fully owned Arizona battery plant, a move which is strategically timed to capitalize on tax credits offered under President Joe Biden’s Inflation Reduction Act, reports the FT.
The company's plan involves the production of advanced batteries with an extended driving range, a move set to materialize in two years, said the outlet.
Although growth is forecast to weaken in the short term, Lee from the institute sees upside for EV manufacturers down the road, if they expand their EV lineups to include more affordable models, wrote the publication.
“The growth rate is slowing in the US and Europe but demand will rebound in the long term due to the environment-friendly policies,” he said, according to FT.
When the EV battery sector turns around and begins to rebound, investors looking for a diversified approach to play the upside in battery metals may choose to take a position in the USCF ETF Trust USCF Sustainable Battery Metals Strategy Fund ZSB.
The fund's objective is to offer direct exposure to the expanding electric vehicle (EV) battery and electrification adoption, as well as the shift towards cleaner energy solutions.
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