The Business Of

Cars | Tesla | The EV Challengers

Morning All!

TGIF! The weekend is so close! But before we get there, we’ve got one final newsletter to round off The Business Of Tesla. Let’s have a quick recap of some of the fun, surprising things we’ve learnt about car manufacturers this week…

• Investor, Not Founder - Elon Musk may be the face of the EV giant, but he wasn’t actually the founder!

• Mass Market vs Luxury - Ford sold a whopping ~4.2 million cars in 2022, at an average revenue of ~$35k/car. Ferrari sold just ~13k, but at ~$328k per car!

• Capex Crazy - after using just their Fremont factory for a decade, Tesla have built 3 new factories since 2019 in order to expand their car production.

Okay so, this week we’ve looked at how Tesla have grown themselves into one of the most valuable companies on Earth. But it’s important to be aware that Tesla are not alone! There are dozens of smaller EV companies looking to grow their share in the market. And the old guard like Ford/Toyota have also heavily invested in electric!

Now, the reason why so many EV companies have popped up recently is because of something we looked at on Tuesday. There’s a huge focus in most countries to transition their vehicles into EVs. The UK plan to only sell EVs from 2035. Many US states plan to do the same by 2035. And analysts believe that by 2030, we could see ~60-80% of new cars sold in the world being electric (up from ~15-20% now)!

So, without further ado, let’s look at of some the main EV challengers! And we’ll keep it short and snappy today!

Tesla Is NOT The Highest Selling EV Manufacturer Anymore!

Okay, so first thing’s first. Tesla isn’t actually the world’s biggest seller of EVs anymore! After dominating the EV industry for over a decade, Tesla had to concede top spot to a Chinese EV maker, called BYD. In the last quarter of 2023, BYD sold ~526k EVs vs the ~485k Tesla managed!

Now, I’m unsure how many of us will actually be aware of BYD. I confess, I only became aware of them last year! But one chap who hasn’t been in the dark is the GOAT of investing - Warren Buffett. This is crazy to me, but Mr Buffett bought shares in BYD back in 2008! 15 years ago! And those shares have done pretty well!

And the rise of BYD has had Tesla’s maverick CEO, Elon Musk, feeling a bit uneasy. Just last month, Mr Musk said that ‘Chinese automakers will demolish global rivals without trade barriers’. Strong words! But question - what is Elon so worried about?

Well, the answer is price. China’s EV manufacturers like BYD sell their electric cars at much lower prices than US and European EV manufacturers. The average EV in China sells for ~€22k vs ~€43k for European players! And the reason Chinese companies can sell their cars for lower prices is because it costs them a lot less to manufacture their cars! The lower cost of people, the huge government subsidies, and the country’s expertise in manufacturing have lead to a huge cost advantage. Even Joe Biden is concerned about China’s EV dominance!

Will Jack Leonardo Di Caprio Let Go?

Okay, so that’s BYD. We’ll look at 2 more Chinese EV manufacturers at the end of today’s newsletter. But let’s switch focus to a couple of Western car companies now. And first up, it’s the Swedish EV manufacturer - Polestar! Now, one of the main things to know about Polestar is that it was actually founded by 2 massive carmakers - Volvo Cars and Geely Holding.

And with the help of Volvo/Geely’s factories and funding, Polestar have been able to grow their EV sales to >$2 billion… just 5 years after selling their first car! The company plan to produce one new car per year. And they also have a pretty famous face as one of their investors… Mr Leonardo Di Caprio.

However, things have been far from plain-sailing for Polestar. The company has consistently struggled to sell as many cars as they’ve said they would. Losses have mounted. And growth has seriously slowed down. In 2023, they sold ~55k cars, which was only 6% higher than the ~51k cars they sold in 2022!

The company’s stock has been destroyed since its IPO in 2021, with shares down >90%! And then, as if things couldn’t get much worse. Just yesterday, Volvo - Polestar’s owners - announced that they were going to stop funding Polestar! A tough time for Polestar’s shareholders. Will Leo hold onto his shares… or will he let go (one for the Titanic fans)!

Tesla Sold ~1.8m Cars In 2023, Polestar ~55k… Wait Till You See Lucid!

Okay, so we’ve seen the 2 opposite ends of the spectrum so far. BYD is the world’s EV leader. And along with Tesla, has managed to create a strong, profitable business. But Polestar, a much younger EV manufacturer, is still searching for profitability. The next company we’ll look at is the exciting US player, Lucid Group.

Now, if you thought Polestar’s ~55k car sales per year was pretty low (remember Tesla sold ~1.8 million in 2023). Wait till you see Lucid. In 2023, the company sold only ~6k cars! And like Polestar, they’ve really struggled to hit the sales targets that they’ve aimed for. Demand has been very low for their premium-priced cars (~$100k). However, a bright spot for Lucid is that they too have a famous investor. And this investor has even bigger pockets than Leonardo di Caprio. It’s Saudi Arabia’s sovereign wealth fund!

In the image above, you can see Lucid’s new factory constructed in Saudi Arabia - the first car factory to ever be built in the country. And the company has also signed an agreement for the Saudi Arabian government to buy a whopping 100,000 Lucid vehicles over the next 10 years.

But the big question for Lucid is - will Saudi Arabia stick around? We’ve already seen how Volvo have pulled their funding from Polestar because of the huge losses they’ve incurred. And if Lucid continue to lose billions for the sovereign wealth fund, maybe they’ll look elsewhere for their EV ambitions!

Can Rivian Sign Up More Companies For Their Electric Trucks?

Okay, let’s move on! And next up, we’ve got another US player - it’s Rivian. Now, things on the production and sales side, are much brighter for Rivian than they were for Polestar and Lucid. Whilst they haven’t sold a huge amount of cars either (~50k in 2023), the company has hit the targets they’ve planned to hit.

Which by the way, is super important for these young EV companies. If you say you’re going to make ~10k cars, but then only make ~6k - something’s seriously gone wrong… and that’s when investors get worried.

Now, the interesting point to make about Rivian is that they don’t just make cars for individuals to purchase. They also make electric trucks for companies to buy! And this is something we came across when we looked at The Business Of Union Pacific Corporation. In that series, we saw that more companies were looking to use electric trucks for their transport in a bid to become more eco-friendly.

And this is the market Rivian plays in. In the image below, we can see the company’s factory filled with electric trucks. And they’re all just for one customer - Amazon! In 2019, in return for Amazon investing >$1 billion into the company, Rivian agreed to only make electric trucks for the retail giant. However, at the end of last year, the two companies decided to end that exclusivity agreement and Rivian are now free to sell their electric trucks to other businesses! Let’s see how they get on!

China’s Car Market Is 2x The US Car Market!

Okay, let’s wrap up! And we’re just going to very briefly touch on two more Chinese EV players - NIO and Li Auto. Now, most of us have probably never heard of these 2 EV companies. But both NIO and Li Auto are much more advanced that the 3 Western companies we’ve just looked at. In 2023, NIO sold ~160k cars. Whilst Li Auto sold a very impressive ~376k - with growth far outpacing their rivals.

And there’s one more important thing to mention when it comes to the Chinese car industry. Earlier we mentioned the country’s cost advantages vs US and Europe. But the company also has a big advantage when it comes to their market size. Because of the country’s huge population, China is actually responsible for >30% of all the new cars sold in the world! In 2023, ~30 million new cars were sold in China, out of ~80 million globally. Versus only ~16 million in the US and only ~2 million in the UK.

However, this great market potential, also attracts a lot of competition. And China remarkably has over 300 EV manufacturers at present!

BYD are clearly the number 1 player in China, and now the world. But will NIO, Li Auto, Rivian, Lucid, or Polestar also be able to grab a decent chunk of the global market? Maybe we’ll revisit EVs in more detail next year and answer this question!

2nd Feb 2024

Nigel Jacob CFA