After heavy falls in 2022, Tesla’s share price has soared 54% this year, largely on the back of price cuts to its Model 3 and Model Y. Ford is also seeing gains after announcing price reductions, but high lithium costs could curtail the sector’s profit potential.
- Tesla stock is up by 54% year-to-date, with record output predicted.
- High lithium prices for batteries could dent future EV profits.
- The Global X Autonomous & Electric Vehicles ETF [DRIV] is up 24% year-to-date.
Cuts in the retail price of electric vehicles (EVs) are giving Tesla’s [TSLA] share price a welcome boost. The company announced on 13 January that it is slashing the cost of its Model 3 and Model Y units. Since then, its stock has rallied by 55.2%.
Overall, January was Tesla stock’s best month for more than two years, following a crash of 65% in 2022.
The recovery will be more good news for CEO Elon Musk, who last week was acquitted of charges that he defrauded investors with a misleading tweet in 2018.
Ford also announced at the end of January that it will implement price cuts on its Mustang Mach-E model by up to 9%.
Ford’s share price initially fell as much as 2% on 30 January following the news. However, in the week since, it has rebounded by 2.6%, suggesting the price reductions might benefit investors.
Tesla’s stock revival comes on the back of better-than-forecast earnings during Q4, and the company’s best-ever quarterly results.
On 25 January, the EV carmaker posted total revenues of $24.3bn and EPS of $1.19 for the three months ending December 2022. This beat analyst predictions for both figures, which were $24.16bn and $1.13, respectively, according to Refinitiv data.
In other positive news, Tesla forecast a record 1.8 million auto units will be produced in 2023. This would be an increase of 30% on 2022’s output.
Ford painted a less rosy picture at its earnings call on 2 February, as Q4 profits missed expectations.
EVs are a key part of Ford’s strategy going forward. It said it hopes to produce up to 600,000 Mustang Mach-Es annually by the end of the year, and scale to more than 2 million by 2026. The company plans to launch seven new EVs by 2024.
Interest rates and lithium prices
The cost of lithium, critical to the manufacture of EV batteries, has rocketed in the past year, dampening profits. Albemarle [ALB], which supplies Tesla with the mineral, has called for prices to stay high “in order to support the incentives required to take on those investment risks”, said Eric Norris, head of its energy storage division.
Recently, General Motors [GM] announced it is investing $650m in a Nevada lithium mine, the biggest-ever deal of its kind. The investment could secure raw materials for up to 1 million of GM’s own EVs annually, and protect it from rising costs.
Supply challenges aside, the EV market is slated to grow. According to Fortune Business Insights, it will be worth $1.3trn by 2028 and grow at a CAGR of 24.3%.
GM is among those ramping up EV production, with plans for 400,000 in the next 18 months. Others launching EVs include Volkswagen [VOW.DE], Hyundai [HYMTF] and Kia [000270.KS]. Garrett Nelson, an analyst at CFRA, predicts over 100 models will hit the US by 2025. “We view the risk of market oversaturation as very high and an industry pricing war should pressure margins”, he wrote in a note seen by Yahoo Finance.
Funds in focus: Global X Autonomous & Electric Vehicles ETF
Tesla is the largest holding in the Global X Autonomous & Electric Vehicles ETF [DRIV], with a 4.07% if assets under management (AUM) as of 2 February.
The second-biggest holding is Nvidia [NVDA] with 3.51% of AUM; General Motors is the 10th-largest with 1.72%, while Ford is the 12th-largest at 1.67%. DRIV is up by 23.5% year-to-date, and down 11.3% in the past 12 months.
Elsewhere, Tesla is the fourth-largest holding in the KraneShares Electric Vehicles & Future Mobility Index ETF [KARS], at 3.85% of the portfolio as of 3 February. So far in 2023 the fund has risen by 19.2%, but in the past 12 months it has fallen by 18.4%.
The First Trust S-Network Future Vehicles & Technology ETF [CARZ] offers exposure to both Tesla and Ford stock. Tesla is the largest holding with 6.16% of the portfolio as of 3 February. The fund offers more limited weighting to Ford stock, which stands at 0.95% of AUM. The ETF is up by 23.3% year-to-date, but down 14.3% in the past 12 months.