Electric Vehicles Industry Update Q1/2020

eResearch | The electric vehicle (“EV”) industry has surged in the past five years as countries around the world implemented various subsidies and policies to promote the purchase of EVs, but the onset of the COVID-19 virus has affected automobile supply chains and retail operations globally.

Companies such as Tesla (NASDAQ: TSLA) have taken the lead in battery-driven EV sales, but other automobile manufacturers, such as Hyundai Motor Group (KRX: 005380), are focusing on electric vehicles powered by hydrogen fuel cells.

According to Acumen Research and Consulting, the EV industry is expected to reach US$567.2 billion by 2026 at a CAGR of 25.6%, stimulated by governments pushing towards environmental sustainability and vehicle manufacturers developing more efficient and affordable EVs.

Unfortunately, the automobile industry is closing facilities worldwide after the United Auto Workers union in the U.S. advocated for suspensions at automobile production facilities to protect employees from contracting the COVID-19 virus. See below for a list of closures.

EV Industry

EV sales have drastically risen globally in the past couple years, as China leads the adoption with 2.3 million EVs on the road in 2018. China accounts for 45% of EV sales globally, Europe falls second with 24% of EV sales globally and the U.S. is in third with 22%.

However, according to a new report called the “Impact of COVID-19 on the Global Electric Vehicle Industry” by ResearchAndMarkets.com, in February 2020 car sales dropped 79% in China due to the pandemic.

According to Bloomberg Energy Finance, prospects look better in Europe with France, Germany and the Netherlands reporting an increase in EV sales, but it was mainly due to European emission targets rising significantly this year with steep fines for those who overextend carbon usage.

A significant factor impeding the EV industry is the stalled supply chains, which are needed to provide crucial parts, such as the special EV batteries. Major EV battery manufacturers in China and Korea, such as Contemporary Amperex Technology, BYD Co. Ltd., and LG Chem TD, have faced interruptions to their operations due to the COVID-19 virus.

As a result, government organizations are taking measures to support the industry, such as the China Association of Automobile Manufacturers (“CAAM”), who enforced an increase in investment capital and reduction in regulations for new electric vehicles in China.

Tesla

Earlier this week, Tesla, the EV industry’s leader in sales, beat analysts’ estimates and reported 88,400 vehicle deliveries in Q1/2020, amid slowing economies severely affected by COVID-19 shutdowns.

The higher than expected number of deliveries came as a surprise after Tesla showed signs of winding down last month as it suspended production at its new facility in Shanghai and laid off employees at its main facility in Fremont, California.

Chart 1: Tesla vs S&P 500 Stock Performance 2020

It appears investors believe Tesla’s fundamentals are stable and expect a quick recovery in the EV industry. Tesla’s stock price has maintained a 108% increase so far this year, while the S&P 500 has dropped almost 12%.

Last year, Tesla reported revenues of US$24.6 billion, a 14.5% increase year-over-year, attributed to its new Model 3 vehicle with total annual EV deliveries increasing to 367,500, a 50% increase year-over-year.

Nevertheless, Tesla is still lacking profitability with US$862 million in losses last year, but high-margin software feature add-ons, such as its various autonomous driving applications, is expected to justify Tesla’s high market value of 400 times estimated 2020 earnings.

Tesla set a delivery target of 500,000 EVs for F2020, for which it has yet to readjust or provide more details in light of the recent COVID-19 impacts, leaving investors to wait until Tesla reports its fiscal Q1/2020 financials on April 29.

Nikola Corporation

In March, Nikola Corporation and VectoIQ Acquisition Corp. (NASDAQ: VTIQ), a publicly-traded special purpose acquisition company, announced that the two companies have entered into a definitive agreement to create a new company, remaining on the NASDAQ, named Nikola Corporation with the ticker symbol “NKLA”.

The transaction includes a US$525 million equity offering at $10.00 per share with participation from institutional investors including Fidelity Management & Research Company, ValueAct Spring Fund and P. Schoenfeld Asset Management.

Nikola focuses on the design and development of Battery Electric Vehicle (BEV) and Fuel Cell Electric Vehicles (FCEV) Class 8 semi-trucks. Nikola’s business model supplies both the BEV or FCEV truck and the hydrogen-fueling infrastructure, thereby solving concerns of where a truck can refuel at competitive pricing to diesel.

Nikola reported they have more than US$10 billion in pre-order leases (14,000 vehicles). With the transaction proceeds, Nikola will be able to break ground on its manufacturing facility in Coolidge, Arizona and begin its hydrogen station infrastructure roll-out.

Nikola expects to generate revenue by 2021 with the roll-out of its BEV truck line while FCEV truck production is slated for 2023.

Image 1: Nikola One Semi-Truck and Hydrogen Charging Station

Nikola One and Hydrogen Charging Station — **Source: NikolaMotor.com**

Due to the coronavirus, most companies in the automobile industry have suspended operations, including:

On March 13, Lamborghini suspended production at its facility in Sant’Agata Bolognese.
On March 13, Ducati suspended production at its plant in Italy.
On March 19, Ford closed all European and North American facilities.
On March 16, PSA Group suspended production at all facilities in Europe.
On March 16, Renault suspended production at all facilities in France.
On March 17, Volkswagen Group suspended production at numerous facilities in Europe.
On March 18, FCA closed all North American facilities
On March 18, Toyota suspended production at all facilities in North America.
On March 18, Honda suspended production at facilities in the U.S.
On March 18, Hyundai suspended operations at a facility in Alabama, U.S.
On March 18, Porsche suspended productions at its facilities in Germany.
On March 19, Subaru suspended production at its sole U.S. facility.
On March 20, Nissan suspended production at all facilities in the U.S.
On March 20, Rivian suspended production at all facilities in the U.S.
On March 20, Bugatti suspended production at its facility in Mosheim.
On March 20, Bentley suspended production at all its facilities in the UK.
On March 20, Jaguar-Land Rover suspended production at its UK facilities, with Brazil and India continuing operations.
On March 20, Volvo suspended production at all facilities in Europe, and on March 26, facilities in the U.S. were suspended.
On March 23, Daimler suspended production at its Mercedes-Benz facility in Alabama, U.S.
On March 23, Tesla suspended production at its signature facility in Fremont, California.
On March 24, Kia suspended production at its facility in Georgia, U.S.
On March 24, Mazda suspended production at its facilities in Japan, Thailand, and Mexico.
On March 24, Aston Martin suspended production in all facilities in the UK.
On March 27, Ferrari suspended both of its facilities in Italy.