Since peaking near the end of the COVID-19 pandemic and briefly after its conclusion, the electric vehicles (EVs) market seemed to start cooling down. Many EV stocks are free-falling, with a prominent example being Tesla (NASDAQ: TSLA), which lost over 30% of its value since the start of the year. However, while the current prospects are grim, can EV stocks bounce back from recent lows in the future?
Why are EV sales dropping?
The start of 2024 was harsh for EV companies, with stock prices tanking and investors scurrying to exit the industry. Promising candidates lost up to 90% of their value, and customers reshifted towards hybrid models again.
How come? There are several reasons, but the most crucial is a cocktail of increased borrowing costs, a below-expected growth rate outside China, and fading subsidies and government programs.
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Furthermore, Trump has declared the EV industry to be “anti-American,” which is in stark opposition to Biden’s commitment to the electric car. Therefore, many investors fear that Trump’s presidential victory in 2024 could result in government support for EVs waning.
China EV market growth
Rather than letting their booming EV industry down the drain, the Chinese government has decided to step in and encourage its consumers to go electric. In the wake of this show of support, BYD (HKEX: 1211) bounced back about 30% in stock price. This carmaker surpassed Tesla in the number of cars produced (3 million vehicles in 2023, and aiming for 4 million for 2024) and delivered and remains a critical component of China’s slowing economy.
However, the PRC’s push has had a collateral effect on the rest of the EV market, re-igniting investing hopes and sparking renewed demand for non-traditional driving.
Is Tesla losing the EV market?
While Tesla was poised for failure in the first quarter of 2024, the EV carmaker is racing for recovery. In fact, its Q1 2024 financial report convinced investors that the company had more to offer than losses alone. In addition to a better fiscal position, the company has promised the production of lower-cost models and a commitment to autonomous taxis.
Elon Musk has also decided to cash in on China’s EV embracement with a surprise visit to the country for Beijing’s major car show, ultimately meeting Li Qiang, the Chinese Prime Minister. While the results of this visit are hard to predict before the Q2 report, it is likely to boost Tesla’s sales.
Are EV stocks going to recover?
The short answer – yes, that’s pretty possible.
While no one can guarantee EV’s revival, there are many indicators that the current market climate is a temporary slump rather than a permanently pierced bubble. In fact, The Economist reports that Tesla and its EV rivals will likely face an increased demand and recover to a better performance than before.
The root of the decline may lie in the cyclical nature of the EV industry and the recent global events. As cars remain luxury goods, especially electric vehicles, specific market conditions tend to apply to their demand. In 2021 and 2022, consumers had an excess of money and low-interest rates, allowing many to participate in an EV shopping spree. The American interest rates are over 3% higher on average than back then, which means customers have to pay more for an already more expensive car.
However, with the expected Fed interest rate cuts and cheaper EV models, the situation should resolve itself in favor of the EV industry. With higher demand and steps made toward affordability, the market should stabilize, and EV stocks will bounce back from recent lows.
Is the EV industry in trouble? – the bottom line
A detailed look into the root causes of the recent EV market crash reveals that the industry will not only survive but likely prosper in the future. If Wall Street analysts are correct, the ongoing slowdown is a consequence of the cyclical market conditions, and demand should resurge pretty soon.
Tesla’s doomsayers have also been rebuked by the company’s sound Q1 2024 report, and the Chinese EV market is bracing for an unprecedented expansion. The push is spearheaded by BYD, which is likely to remain a dominant EV force over Tesla, at least until the American EV pioneer develops its more affordable models.
There are also the U.S. elections to consider, as the parties remain divided on the issue. Democrats, led by Biden, support EVs, while Republicans express skepticism and support traditional and hybrid car manufacturers.
Ultimately, the investing public will dictate whether EV stocks bounce back from recent lows. If you are inclined towards a positive answer, now might be the right time to jump in. However, make sure you know the risks involved and have the investment researched before spending any money.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
