Do you have an electric vehicle (EV) yet?
Do you even know anybody who has one?
I know of a few. Mostly Tesla people. They seem happy with their purchases.
I have a friend, Joe, who has the Tesla S Plaid model. It sits next to his Rolls Royce, his Porsche and his lifted Toyota truck.
It’s white. And, I’ve never experienced anything like it. We rolled out of our neighborhood … got onto Military Trail (45 mph zone).
“You ready?” he said. My head sunk into the seat and my stomach was behind us as we took off like a rocket. We were at 100 mph in the blink of a second.
The tires didn’t spin on the pavement. No noise. No revved-up engine.
Just silence and speed.
My friend wouldn’t trade his Tesla for anything. He will probably buy a new one in a few years.
“It’s fast. It’s quiet. Maintenance is virtually zero. The car has a five-star crash rating. And it’s sexy as hell. What’s not to love?”
I still don’t own one. Why? Because I drive an old Jeep Wrangler … and will never sell it.
My wife is in a Chevy Suburban. We need that big Suburban to drive us on our 1,000-mile trips.
I won’t get an EV until there is a Suburban-sized EV that can take me 1,000 miles.
Just a note … I am not a car guy. I really am not. So, some people love this stuff. Not me. I like to buy a car and own it for 10-plus years.
I think I’m like most people. My Tesla-driving friend is an outlier, an early adopter of technology and gadgets with cash to burn.
Mass Adoption of EVs?
Unsurprisingly, EVs account for less than 9% of car sales right now. Not much. Yet the auto industry has bet the farm on very quick EV adoption.
The Biden administration is backing Detroit with tax breaks and incentives to get people to give up gas-guzzlers and buy American-assembled electrics.
And … it’s not working out.
EV inventories are piling up at dealerships across the country. An electric sits on the lot for 82 days, compared to 64 for a regular gasoline model.
If you look out across the world, China is leading the way on mass adoption of EVs. Europe is next, and that’s largely down to Scandinavian countries. USA trails.
Norway, for instance, has an 80% EV adoption rate. Thank massive government tax breaks and subsidies for that, as well as early moves on a national charging infrastructure.
Another part of the reason is that Norway’s wealth is largely from oil and gas exports. The country controls a massive $1.5 trillion sovereign wealth fund, built from decades of oil sector receipts.
Do as I say, not as I do. Norway is moving fast on EVs but also raking in cash on petroleum exports.
Go figure.
There are a few headwinds for mass adoption of EVs in the United States. While there are fixes, our free market model means we’ll go through a period of turbulence, in which there will be winners and losers.
Unless the Biden administration goes heavy-handed like China or decides to raid the budget and much more heavily subsidize EVs like Norway, it will be slow.
Which is fine. It’s the American way. And there isn’t much evidence that mass EV adoption will really move the needle all that much on climate. The electricity EVs use is made at U.S. power plants, and that energy is still 60% generated by fossil fuels.
It will take mass adoption of EVs and a major shift to renewables, plus billions in power grid updates, to really move the U.S. car market toward something sustainable in terms of climate.
In the meantime, just working from home reduces a person’s climate footprint by 50%.
Climate aside, what would it take to get American drivers to catch up to Norway, or at least to China, on EV adoption?
Not a whole lot, really. It might happen pretty fast, all things considered.
This isn’t a prediction of when EVs will be a 100% clean alternative to gasoline engines. Rather, how long it will take for EVs to displace ordinary cars on the road in a big way.
Here they are, in order of likelihood.
Game-Changer #1: An EV Price Crash
Tesla CEO Elon Musk is cutting the price on his cars in order to get ahead of global giants such as GM and Honda.
He can’t make cars faster. Since he has no dealers, he can’t get them to market easier than the big automakers. So the Tesla CEO has to move on price earlier to get a toehold in the mass market.
The big automakers already are responding, slashing prices on EVs to goose up sales.
EV prices are down 42%. Tax breaks will help, but good old supply and demand is a much bigger force at work here.
Falling interest rates will play a role, too. If the Federal Reserve cuts rates in 2024, as some now predict, that will get car buyers off the sidelines.
Like with mortgages, a lot of people are sitting on pre-pandemic loans they don’t care to refinance at double and triple the cost.
That will change, but it might take a while.
In the meantime, high auto loan rates (as seen above) puts even more pressure on dealers to slash EV sticker prices to compensate.
Game-Changer #2: We’ll Get Used to EV Charging
People burn several brain cells worrying about charging an EV on the go, like a gas car.
They see the limited number of charging units and worry about getting stuck somewhere. For the vast majority of American drivers, this is a red herring.
The average person in this country drives 37 miles a day. That’s it. Take the kids to school, swing over to the office, park for hours and hours, stop at the grocery store, pick up kids, go home.
The range on newer EVs is multiples of that figure, more than 250 miles on a charge.
So people worry about running low on juice, but the fact is that the vast majority of drivers will get home and plugged in with plenty of charge to spare.
The next day, they’ll do it all over again.
Owning an EV today is slightly cheaper than buying an ICE vehicle, according to recent research, though it’s close. That’s down to lower initial maintenance costs and tax subsidies.
Plus, starting on January 1, 2024, new tax breaks on certain EV models (mostly American brands) will kick in.
Once EV prices fall for real, the differences will be stark.
Economies of scale are important here, which brings us to…
Game-Changer #3: Automakers Finish Retooling & Don’t Look Back
This is the big Kahuna. No automaker will be able to sustain two completely different product lines, supply chains, cost structure, labor requirements and all the rest of it. Not for long.
This is why General Motors went in on EVs so big. GM sees the competition from companies like the Warren Buffett-backed BYD in China and knows that the change-over is unavoidable.
The above chart shows the amount in billions that have been invested in EVs for the past few years (it’s only growing).
Once prices align with reality and interest rates fall, some companies will have the manufacturing model in place to gobble up market share at scale. Some will not.
Japanese makers, notably Toyota, have dragged their heels on EV adoption. The reason why is union power.
It takes less hands to build an electric car. The parts are fewer and simpler.
Arguably, there will be new jobs in battery factories. That might offset assembly line job losses. It’s why the administration made the latest tax breaks about domestic battery production rather than car sales alone.
Labor was a big part of the argument between the Big Three here at home and the United Auto Workers: Who was going to pay the freight on the EV transition? Investors, labor or some split?
Nevertheless, Toyota now is talking about a solid-state battery with ultra-fast charging times and 620 miles of range by 2027.
Toyota is the #1 carmaker on the planet, slightly ahead of Volkswagen. (Tesla is just outside the Top 10). What the big carmakers do matters, and they are finally getting into EVs.
In my estimation, Americans are likely to buy hybrid vehicles first, cars and trucks which burn gas but also rely on electric power in certain instances.
That puts real money in their pockets sooner. Hybrid mileage is far better than plain old gasoline engines — a 40% improvement.
Meanwhile, the average age of cars on the road has been steadily creeping higher, now at 12.5 years.
If that seems high, that’s because it is. The average age of cars on the road in the 1990s was around eight years.
At some point people will pull the trigger on new wheels, likely as interest rates normalize and EV and hybrid prices rationalize to the actual demand.
All those billions spent by the automakers to transition will begin to pay back and EV adoption will ramp way up.
As for investing, well, stay away from automakers. Auto manufacturing is an awful business with low margins.
But Tesla could overcome that problem. It’s angling to be more than just a car company.
Musk is betting he will make money from controlling charging station tech and side businesses like self-driving technology, home energy storage, electricity grid backup and solar.
The major automakers have already fallen in line, adopting Tesla’s Supercharger network technology. Musk may end up running the nation’s new “filling stations” coast to coast.
Ultimately, Tesla (Nasdaq: TSLA) is a high risk, high return bet. All of the other automakers are high risk, low reward.
If you want to invest indirectly in the EV value chain there are some amazing stocks that will benefit from the growth, including plays in blockchain, AI, lithium mining, chips and software.
Our resident tech and finance expert, Ian King has been delving into a unique investing opportunity in AI Energy, a potential $40 trillion market disruptor!
And Charles Mizrahi has uncovered what could be the future of EVs — a game-changing battery tech called the “Forever Battery.”
Aaron James
CEO, Banyan Hill, Money & Markets
