At the beginning of the year, the global electric vehicle industry encountered a headwind. In the waters of the Red Sea, frequent attacks by Yemeni Houthi militants disrupt the behavior of commercial ships, obstructing the main artery of Eurasian trade and disrupting the supply chain.
Affected by the increased risk spillover of the Red Sea shipping, Tesla is facing a shortage of spare parts and has announced that it will suspend most of its automobile production in the factory near Berlin, becoming the first automobile manufacturer to suspend production due to the tension in the Red Sea. Subsequently, the Volvo Ghent factory in Belgium also announced a three-day shutdown.
In this regard, Ritika Kapoor, the market information manager of Container xChange, a container operation platform, explained to a reporter from the Daily Economic News that the automotive industry is highly dependent on global supply chains, and automakers typically adopt a "just in time production" model. Therefore, any delay in the supply chain can disrupt production arrangements.
In addition to the impact of the tense situation in the Red Sea, the electric vehicle industry, which has always been highly anticipated, is also facing a cold wave caused by weak market demand. A recent survey conducted by WedBush Securities in the United States showed that consumers still have many concerns when purchasing electric vehicles, not only about the price of the car itself, but also about driving and maintenance costs, as well as whether government subsidies can be obtained.
The "Butterfly Effect" of the Red Sea Crisis
The first headwind encountered by the electric vehicle industry in 2024 came from the Red Sea in the Middle East region. Since November 2023, the Yemeni Housai armed forces have repeatedly attacked ships associated with Israel in the Red Sea using drones and missiles, leading to multiple international shipping companies announcing the suspension of Red Sea routes and turning to the southern end of Africa. On January 22nd, the United States and the United Kingdom launched their eighth airstrike on a target of the Houthi militants in two weeks. However, the Houthi militants insisted on "not surrendering" and their attack will continue until Israel stops its military strikes on the Gaza Strip.
At the northern end of the Red Sea, there is the Suez Canal in Egypt, which leads to the Mediterranean Sea, and at the southern end, there is the narrow Strait of Mandela, which leads to the Gulf of Aden and is a major artery for global trade. Tesla recently announced that due to armed conflicts in the Red Sea and changes in transportation routes from Europe to Asia, the company will suspend production at its Greenhead factory near the German capital Berlin from January 29 to February 11, becoming the first automaker to announce a suspension of production due to the tense situation in the Red Sea. Volvo also stated that the "readjustment of the sea route" has resulted in delayed delivery of the gearbox, and its factory in Ghent, Belgium has been shut down for three days a week starting from January 15th.
Ritika Kapoor, the market information manager of Container xChange, a container operation platform, explained to a reporter from the Daily Economic News that automobile manufacturers usually adopt a "timely production" model, which means that parts are only shipped when there is demand. Therefore, any delay in the supply chain will disrupt production arrangements, and the automotive industry is particularly dependent on the global supply chain.
"Like other industries, the automotive industry needs to improve its assessment of geopolitical risks and corresponding management strategies. Companies must closely monitor global hotspots and adjust their supply chain strategies accordingly to minimize potential risks." Kapoor said.
If the ship avoids the route of crossing the Suez Canal through the Red Sea and entering the Mediterranean, it will require an additional 6400 kilometers to detour around the Cape of Good Hope in Africa, adding 10 days to the journey and thus increasing costs. "These additional costs are likely to be transmitted to consumers or reduce the profit margins of car companies, which will affect their competitiveness in the global market," Kapoor said.
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Annual profits have dropped for the first time in 7 years, and Tesla's market value has evaporated by $80 billion in a single day
As a global leader in electric vehicles, Tesla's current situation may also provide a glimpse into the development of the electric vehicle market. On January 24th local time, Tesla released its financial reports for the fourth quarter and full year of 2023. The report shows that although total revenue reached a new high in 2023, both revenue and earnings per share fell short of expectations, and Tesla reported its first annual profit decline since 2017: non GAAP net profit attributable to common shareholders was $10.882 billion, a 23% year-on-year decrease.
Affected by the price reduction of car models, Tesla's gross profit margin in the fourth quarter of 2023 showed a continuous downward trend, dropping from 17.9% in the third quarter to 17.6%, lower than the market expectation of 18.3%, and a decrease of more than 6.2 percentage points from 23.8% in the same period in 2022. In 2023, Tesla's gross profit margin was 18.2%, a decrease of 7.35 percentage points compared to 2022.
It is worth noting that Tesla has bluntly stated that its production, delivery, and shipment growth rates in 2024 may be significantly lower than in 2023, and the company has rarely disclosed delivery targets for 2024. For a long time, Tesla has set its average annual growth rate at 50%.
This financial report clearly disappointed the market. On January 25th, the US stock market closed, and Tesla's stock price plummeted by more than 12%, evaporating its market value by $80 billion in a single day.
Even analysts who have long praised Tesla cannot help but criticize Tesla and Musk. "We also expect Musk and his team to provide a strategic and financial overview of issues such as price cuts, profit margin structures, and demand volatility during the conference call," said Dan Ives, Managing Director of WedBush Securities in the United States, in a comment email to a reporter from The Daily Economic News. "We are completely wrong."
In Ives' view, investors are actually most concerned about issues such as declining profit margins and the continuous price reduction behavior in the global market, while Musk has focused on long-term strategic topics such as next-generation vehicle schedules, autonomous driving, and AI. Ives believes that these long-term stories still hold true, "however, the short-term issue of price cuts, as well as the lack of communication and financial guidance between Musk and Tesla, is like a 'Category 4 hurricane disaster', a bitter pill that even bulls find hard to swallow."
Based on the above reasons, WedBush Securities maintained Tesla's "outperforming the market" rating, but lowered its target stock price from $350 to $315. "Our short-term confidence in the (Tesla) story has shaken... This is a critical period that Musk needs to lead Tesla through," Ives said.
Will the electric vehicle market face a "huge change"?
From the planning of other electric vehicle manufacturers, it seems that the growth of electric vehicles in the international market has indeed shown signs of fatigue.
On January 20th, the pure electric pickup truck F-150 Lightning, which Ford had high hopes for, faced a reality of weaker than expected demand and had to reduce production plans. Ford expects global electric vehicle sales to continue to grow in 2024, but at a slower rate than expected, due to consumer unwillingness to accept alternative products that are more expensive than gasoline cars.
On January 11th, American car rental giant Hertz announced that it will sell about 20000 electric cars due to high maintenance costs and low value of used cars. Previously, another actively electrified American automaker, General Motors, postponed its plan to invest $4 billion to renovate its electric pickup truck production plant for one year.
The story of the rapid penetration of electric vehicles has encountered a harsh reality, which has also made investors sweat about the overall trend of the electric vehicle industry in 2024. On January 23rd, Toyota Chairman Akio Toyoda boldly predicted that pure electric vehicles would only occupy up to 30% of the market share, and the remaining majority of the market share would be occupied by hybrid vehicles, hydrogen fuel cell vehicles, and fuel vehicles.
A recent survey conducted by WedBush Securities on American consumers showed that about half of the respondents are considering buying an electric car next, which is a positive signal. However, consumers still have many concerns: the biggest issue is still cost, which not only refers to the price of the car, but also includes the cost of driving and maintenance, whether government subsidies can be obtained, and so on. In addition, the popularity of charging stations and long-standing issues such as charging speed and range are also concerns for consumers.
"It is obvious that there is a stagnation of demand in the electric vehicle industry," the report said. "But we believe that with the launch of affordable new models in the coming years, meeting more consumers' needs, this will only be a bumpy turning point on the road to automotive transformation."
Research firm Bloomberg New Energy Finance (BNEF) predicts that the global growth rate of electric vehicles (pure electric vehicles and plug-in hybrid) will be 21% in 2024, with sales reaching 16.7 million units. This number is significantly lower than the 33% growth rate in 2023.
The Chinese market will still be the world's largest electric vehicle market, with a total sales volume of around 10 million vehicles, which means that 6 out of every 10 electric vehicles sold globally are in China. The growth of the European market is relatively slow, at about 8%, with a total sales volume of 3.4 million vehicles.
The US market is very difficult to judge: on the one hand, Ford and General Motors are warning of a decline in demand for electric vehicles, on the other hand, Tesla's sales are constantly reaching new highs, and Hyundai and Kia's growth rates have not seen a decline. In addition, in the 2024 US general election, if Republicans win, electric vehicle subsidy policies will face significant uncertainty. Bloomberg New Energy Finance's forecast for the US market is to sell 1.9 million electric vehicles annually.
Prateek Biswas, a transportation and materials industry analyst at Wood Mackenzie, a consulting group, stated in a comment email sent to a reporter for The Daily Economic News: "The leading Republican candidate has made it clear that they want to abolish the US government's $7500 electric vehicle subsidy and introduce an electric vehicle tax. Withdrawing emissions and fuel economy standards from 2027 to 2032, combined with abolishing subsidies, will not only lead to traditional car companies reducing their investment in electric vehicles, but also shrink profits for global electric vehicle giants like Tesla and affect their future investment intentions."
"However, the United States is far from the most important market, accounting for only about 11% of global electric vehicle sales, so there is no need to overly interpret the situation in the US market," said Coin McKerracher, an analyst at Bloomberg New Energy Finance.
