(BFM Bourse) – While investors praised electric players a few years ago, this theme has now completely fallen out of fashion, due to lower profitability than in thermal vehicles. Builders are even rewarded for slowing down on their projects, according to Morgan Stanley.
It is March 2021. Volkswagen is delighting the market with its famous “Power Day” during which the German group unveils an ambitious electric strategy. Its action will increase almost 20% in two sessions. Other major manufacturers, such as Stellantis and Renault, will step into the breach and organize similar events in the following months. The same year, electric “pure players” entered Wall Street with great success, such as Rivian, a specialist in electric vans, or the Californian Lucid Motors.
A few months later, at the start of 2022, Renault announced plans to bring together its electric technologies in a specific entity. Which will lead to the Ampere listing project.
The market has now made a 180 degree turn. The price of Lucid has been divided by more than 15 since its peaks of 2021, that of Rivian by more than 8. As for Renault, the diamond group was forced in January to abandon the plan to list Ampere on the stock exchange , citing unfavorable market conditions. The success of Pluxee’s IPO, a few days later, will show that the problem did not come so much from the market itself as from investors’ lack of appetite for electricity.
The fall in Tesla shares, 23% since the start of the year, also illustrates this: the electric vehicle is no longer popular on the stock market.
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A “childish” turnaround
Intense competition from Chinese groups, which have also forced Tesla to adopt an aggressive pricing strategy, is one of the factors in this disenchantment with electric vehicles.
Slowing growth is another. According to Morgan Stanley, the penetration of electric vehicles in Europe even declined in December, with this engine representing 22% of the market compared to 26.5% a year earlier.
BloombergNEF anticipates electric vehicle sales growth of 21% in 2024. But nearly 60% of those sales will be in China, “while markets like Europe and the United States are expected to slow due to a mix “a decline in incentive measures (subsidies, editor’s note), a backpedaling of established car manufacturers and pressure on consumers”, adds the Bloomberg research company. “The US elections could shake up the electric vehicle market if Trump is elected in November,” BloombergNEF also warns.
The lack of profitability weighs heavily. Notable example: in 2023, Ford suffered an operational loss of $4.7 billion in its electric division, when the other two activities (thermal vehicles and utility vehicles) generated a profit of more than $7 billion each. . “With mainstream adoption of electric vehicles occurring at a slower pace than the industry expected,” the group decided to defer “certain capital investments in electric vehicles until they are justified by demand and the prospects for return on investment”, explained Ford in the presentation of its annual results.
Even the best performers in terms of profitability suffer dilution in electricity. Carlos Tavares, the general director of Stellantis, told journalists last week that his group certainly benefited from “good margins” in the electric sector. But these margins remain lower than those of thermal, added the manager.
“Even at a group like Stellantis, the margin on electricity is on ‘high-single-digit’, that is to say 8-9% compared to ‘double digit’, i.e. more than 10%, in the thermal sector”, comments an analyst specializing in the automotive sector.
“A few years ago the ICE (the thermal engine vehicle, editor’s note) was the toxic product. Now the market has completely changed its tune and the electric vehicle has become the toxic product for reasons of profitability”, he continues. “The thermal engine has returned to the field of possibilities and the market believes that this engine can become a cash cow (cash cow, Editor’s note), that is to say a cash-generating activity which requires relatively little investment”, adds this expert.
Luca de Meo, the general director of Renault, summed up the trend observed in the market quite well. “Three years ago everyone told us ‘if you don’t go 100% electric you will become a group of zombies in ten years’ and now everyone tells us that we shouldn’t go electric because of profitability or whatever reason,” he said, criticizing a “quite childish” change of opinion.
A “Darwinian” era
In two recent notes, Morgan Stanley painted a worrying picture. For the bank, the year 2024 will constitute “a Darwinian vintage” in the electric sector, implying that there will be damage. “Demand for electric vehicles is slowing, suppliers are reducing their order books, fleets are being reduced and some consumers are returning to thermal or hybrid engine vehicles,” she lists.
“Manufacturers are ‘rewarded’ for reducing spending on electric vehicles. It has become fashionable to be a ‘bear’ in electric vehicles,” continues Morgan Stanley. “Could the year 2024 mark the trough of the wave?” asks the bank.
However, with all due respect to the market, the bosses of the large groups agree that a U-turn is impossible.
Even if Ford slows down, its financial director, John Lawler, assured that electric “is here to stay”. Same story with Luca de Meo. The manager called for keeping a cool head, stressing that electric vehicles would constitute the dominant technology in Europe, and not only because of the ban on thermal and hybrid vehicles in 2035. The Renault general manager recalled the importance of the CAFE (corporate average fuel economy) regulation which imposes progressive levels on manufacturers to reduce their carbon dioxide emissions. “In 2025, we will have to reach 95 grams of Co2 on average on the fleet (per kilometer, Editor’s note) and in 2030 it will be 50 grams. Even with the best thermal/hybrid engine you arrive at 80 grams… No need to be a Nobel Prize in Mathematics (sic) to understand that we need a lot of zero-emission vehicles”, illustrated the manager.
“Stars” to align
Carlos Tavares also considers that the march towards electricity will not stop because “the question of global warming imposes itself on us”, which constitutes a “reality” that public opinion cannot “ignore”.
However, the manager warned that a certain number of stars (four) must be aligned for the electric vehicle to prevail: renewable energies in acceptable quantities, a sufficiently dense network of charging stations, electric vehicles available with a fairly high autonomy, and, finally, affordable prices for these same vehicles. If just one of these stars is not aligned with the others, “slowing down effects” can occur in electricity, he added.
“We realize that the growth of electric vehicles is clearly not a straight line, but an “S” which can flatten,” warns the automotive sector analyst previously cited.
Despite this adverse context, the automobile manufacturers listed in Paris have succeeded in their meetings with the market. Renault and Stellantis gained 6.5% and 5.7% respectively after the publication of their annual results last week.
Both manufacturers have assets to cope with the decline in demand for electricity. Renault intends, excluding exceptional items, to increase its profitability by 60 basis points (0.6%) in 2024, assesses HSBC. With this in mind, the diamond group will rely on its numerous launches (ten) planned for this year.
For its part, Stellantis benefits from the flexibility allowed by its multi-energy platforms (the bottom of the vehicles including the chassis, which serves as a common production base for several models to generate savings), and therefore usable for any type of engine. . “Stellantis is particularly well positioned to take advantage of the recent slowdown in the electric vehicle market, thanks to its flexible architecture in Europe and its initial strategy in favor of hybrid electric vehicles in North America,” praises Royal Bank of Canda.
Enough to face the storm and watch for how the competitors will brave it. Asked about a potential consolidation with other manufacturers, Carlos Tavares replied that Stellantis had no plans at the moment. But he left the door open: “we will see how everyone will resist the Darwinian period that we are experiencing…”.
Julien Marion – ©2024 BFM Bourse
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