In today’s automotive car market, every potential car buyer faces a tough dilemma: to embrace the traditional roar of an internal combustion engine (ICE) or to venture into the electrifying domain of electric vehicles (EVs). This decision isn't merely about horsepower and torque; it's a journey propelled by the powerful winds of media campaigns urging us toward a zero-emission future.
This follows a foray of media campaigns to go into a zero-emission new world order that’s heavily funded and promoted with tax credits and a utopia of being cheaper to maintain, higher performance, environmentally friendly, and quieter. But the big question is, is this what the world is looking for? Is the average global citizen bothered by their engine sound or the fumes coming out of their exhaust?
While this debate could morph into a lengthy discussion, this article focuses on the real-world data in a bid to understand global consumer and investor trends not to help you decide about your next car purchase but in an attempt to understand the industry and invest like a pro.
The ICE industry is expected to grow at a 9.2 percent compounded annual growth rate (CAGR) while the EV industry is expected to grow at an 18 percent CAGR over the next nine years, according to Precedence Research and Emobility Plus Research. This shows that EVs are getting adopted at a higher pace than ICE vehicles.
Make no mistake, ICE vehicles are still the dominant vehicle category in the world. In 2022, 14 percent of all new car sales were electric and this number increased to 18 percent in 2023. This leaves ICE vehicles with 82 percent market dominance.
Looking at the giants in the industry, BYD, the world’s top-selling Chinese EV company produced 3.05 million electric vehicles in 2023 which beat Tesla’s 1.84 million electric vehicles. On the ICE front, Toyota, the world’s largest car manufacturer, produced 8.6 million cars in 2023 with 2.3 percent of the total production representing its EV sales.
On the stock market, Toyota gained 32.9 percent in 2023 while Tesla gained 105 percent and BYD gained 3.67 percent in the same period. These companies enjoy a diversified set of production lines, market, tax benefits, pricing, and supply chain moats that reflect on their annual earnings per share and thus annual stock performance. In recent years, the fast-growing EV sector has outperformed the ICE sector as investments and optimism have driven more investors towards EVs.
On Wednesday 24th January, during a Tesla earnings call, Elon Musk was quoted saying that Chinese EV automakers will demolish competition if the West doesn’t imply tariffs on Chinese EV exports. This was after Tesla missed fourth-quarter earnings expectations of $0.74 by $0.3 and missed revenue estimates of $25.6 billion by $0.4 billion. The company cited a recent price war with Chinese EV makers as the major contributor to its earnings miss despite delivering a record 484,000 EVs in the quarter.
On the same day, Akio Toyoda, head of Toyota, was quoted saying that EVs will never reach 30 percent global market share citing that it is customers who will determine the fate of electric cars, not regulators or politicians. In the Toyota production system lecture, Toyoda added that carbon dioxide is the enemy, not ICE cars. He explained the challenges of global EV adoption such as the over 1 billion people without access to electricity and a higher number without EV charging infrastructure.
What are the risks of investing in EVs in 2024?
In September 2023, Ursula von der Leyen, President of the European Commission, launched an investigation into Chinese battery electric vehicles (BEV) to understand the extent of illegal subsidization into Chinese EV value chains and to understand how it affects EU BEV manufacturers. The investigation is expected to be completed in October this year and it could potentially lead to tariffs imposed on Chinese BEV exports to the EU. This comes despite the EU implementing policies that support EV adoption which requires phasing out ICE vehicles to lower carbon emissions.
EV production requires tons of rare earth metals (REMs). Rare earth metals are used to manufacture magnets that are crucial to all EV propulsion motors. They produce the best magnets that can sustain optimum magneticity in high temperatures. Despite the naming, REMs are quite common on the earth’s crust and are three times more common than copper. However, they appear in low concentrations which makes them more expensive to mine.
The key concern in 2024 is geopolitical tensions such as the Houthi attacks on shipments along the Red Sea that could cause supply chain bottlenecks for automakers. China controls about 90 percent of the world’s supply chain of rare earths.
This put Chinese EV makers at an unfair advantage compared to the rest of the world. This explains why top EV companies from the rest of the world such as Tesla have huge production lines in China.
There is also a political risk that if Donald Trump wins the US presidential elections in November, he could resume the US-China trade war which may hurt US and Chinese EV manufacturers.
What are the opportunities in the automobile sector in 2024?
Electric vehicles are becoming more technologically advanced, affordable, and accessible as manufacturers ramp up production. In addition, the growth in charging infrastructure is making it more convenient to own EVs.
ESG and sustainability initiatives are also accelerating EV adoption while investors bet on advancements in EV battery technologies. For instance, in September 2023, Toyota announced new liquid electrolyte battery technologies to achieve higher power, longer driving range, faster charging, and lower cost.
Advancements in autonomous driving technologies especially in advanced driver-assistance systems could accelerate in 2024 leading to higher sales and profits for EV manufacturers.
Companies developing superior digital technologies that add software-based entertainment, safety, work support, and integration with smart grids may gain a bigger market share in 2024 as the global population becomes increasingly digitised.
