I’m a car guy.
I love the power… the elegance… and the speed. Aside from the pleasure I get from driving my Bentley day to day… I proudly own several collectibles.
So I’ve been keeping a close eye on the EV sector… not just as an investor but as someone who loves cars.
With EVs, it’s easy to get caught up in the excitement of technological innovation, environmental promises and potential rewards.
But when you look closely at the overall picture… it gets complicated.
The economics of owning an EV… and a fundamental analysis for investing in EVs… paint a picture with far less “green” and more “red” coloring the industry’s future.
Here’s why you should be cautious jumping into the sector…
The Achilles’ Heel
One of the biggest concerns with EVs is how long the battery lasts… and how quickly it can degrade.
The performance of lithium-ion batteries diminishes over time, meaning an EV’s range decreases as the vehicle ages. Replacing a battery can be prohibitively expensive, often running into thousands… and in the case of trucks, tens of thousands of dollars. That cost erodes the economic benefits of lower fuel costs.
This fundamental drawback raises questions about the long-term viability and cost-effectiveness of EVs.
Depreciation at Full Speed
The rapid pace of tech advancements in the EV market is a double-edged sword.
I love EVs… yet I hate them. And not just because I’m an old-school car guy.
On one hand, it’s leading to better, more efficient and – I have to admit – faster vehicles. On the other hand, it’s leading to faster depreciation rates for older models.
(Although… my collectibles are worth a lot more now than they went for years ago.)
Depreciation is such a problem, car rental companies are dumping their EV fleets.
Hertz is selling about 20,000 EVs, including Teslas. It cited a number of reasons… steep depreciation rates, a bumpy road for EV sales growth, and the hidden costs of EV ownership, such as high expenses related to collision and damage repairs.
The company had big plans to incorporate EVs into its fleet, including orders for 100,000 Teslas and 65,000 units from Polestar over five years. But now Hertz has shifted its focus toward improving profitability for the rest of its EV fleet amid a broader review of EV market expectations.
Sixt has been phasing out Tesla vehicles from its rental fleets for similar reasons…
The company cited the lower demand for EVs over to gas-powered cars. It pointed out that the real-world costs of buying and running EVs – made worse by price wars, particularly by Tesla – led to significantly higher holding costs for Tesla vehicles.
Rental companies face real challenges adding EVs to their fleets. They must balance managing costs, navigating the used EV market, and aligning their supply with consumer demand.
The uncertainty around battery life makes this issue worse. EVs are less attractive on the used car market. That leads to steeper drops in resale value compared to traditional vehicles.
Costly Premiums
Insurance premiums for EVs can be significantly higher than for gas-powered cars.
There are many reasons. Insurance companies have to consider higher purchase prices, more expensive repair costs due to specialized parts and labor, and a higher likelihood of battery damage in accidents.
These factors add up to an overall higher cost of ownership. That again challenges the notion that EVs are a more prudent choice in the long run.
A Heavy Burden
EVs are generally heavier than their gas-powered counterparts. That’s largely due to the substantial weight of their batteries.
The increased mass can lead to faster wear and tear on brakes and tires. Not to mention wear and tear on roads over time.
The additional weight also poses challenges in accident scenarios, where heavier vehicles can cause more damage.
Range Anxiety
There have been significant investments in charging infrastructure. But availability remains uneven, particularly in rural areas. Drivers must plot routes carefully… and sometimes forgo trips in the EV if the miles and range don’t add up.
“Range anxiety” is a considerable barrier to EV adoption. Potential owners worry about being stranded without a charging station in sight.
Until charging infrastructure catches up to the number of EVs on the road, this will remain a sticking point for many consumers.
Not So Clean and Green
While EVs emit no tailpipe pollutants, their environmental footprint is not remotely close to negligible.
Battery production is energy-intensive. It involves mining for lithium, cobalt, and other metals that are often mined in ecologically and socially harmful ways.
Plus, we still don’t know how to properly recycle these batteries at the end of their life cycle.
And if the electricity used to charge EVs comes from fossil fuels, the overall environmental benefits get smaller.
About That Grid
Speaking of charging… our outdated electrical grid is not ready to handle a switch to all EV.
We’re already seeing the impact of increased demand with outages and blackouts.
The U.S. needs significant investment in grid capacity… and more reliable renewable energy sources… before the environmental benefits of EVs are fully realized.
It’s for all of these reasons I urge caution when deciding to invest in the EV sector.
A Bumpy Investing Road
Longtime readers know I’m no fan of Tesla stock. I like its cars… but its truck, not so much.
The stock’s been hit with serious bouts of selling. Price reductions have eroded margins… and rental car companies have backtracked on huge orders.
Investing in General Motors (GM) or Ford (F) for a return on an EV future is like watching grass grow. I wouldn’t go there.
Rivian (RIVN) is losing so much money it’s not funny. Although its negative 122% profit margin is funny to me.
Really, the only EV play worth any investment dollars right now is China’s BYD Co. (BYDDY).
It’s selling cars around the globe… but not in the U.S. There’s stiff pushback on BYD coming to the U.S. thanks to its price undercutting. BYD’s entry level Seagull model sells globally for about $9,700.
That’s an insult to U.S. automakers… but it’s the reason BYD is the largest EV seller in the world.
The company is profitable and makes its own batteries. It’s grabbing market share at a staggering pace. BYD is backed by the Chinese government and by well-placed politicians and businessmen.
It’s the only EV stock worth buying now.
— Shah Gilani
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Source: Total Wealth Research