3 reasons why the recent electric vehicle stock-price correction isn’t the end of the road for the EV trend, according to the world’s largest wealth manager

2022 GMC Hummer EV 1
2022 GMC Hummer EV.

Electric-vehicle stocks have taken a hit the past few weeks amid a rotation away from highly valued tech and growth names, but that doesn’t mean it’s the end of the road for the EV boom, according to Mark Haefele, chief investment officer of UBS Global Wealth Management.

Long-term technological and environmental shifts suggest the boom should continue, while acknowledging that volatility in the share prices of individual companies argues for investors to diversify their exposure. Still, Haefele’s team said investors should consider the underlying data.

Elon Musk’s Tesla has led an incredible boom for electric vehicles over the past few years, and in 2020 alone, sales of electric cars rose 43% while overall car sales slumped 20%, according to data published on Tuesday by EV-volumes.com. The market has grown so much that these days, Tesla is just one of dozens of competitors in the rapidly-expanding industry.

In fact, Tesla’s share of the US EV market fell to 69% in February, down from 81% in the prior year, a Morgan Stanley report found.

It’s getting more crowded, too, as every major car company in the US has said they will be entering the EV market.

General Motors recently pledged to invest $27 billion to launch 30 EV models by 2025, and it has showed off new cars like an electric Hummer, which is set to be released in 2022. Ford released the Mustang Mach-E, which has taken market share from Tesla, and VW recently unveiled its plans to build six “gigafactories” in Europe by 2030 to aid with its EV business.

In China, EV players like SAIC Motor Corporation are targeting the lower-end market with cars starting at just $4,465. The company sold over 25,000 Hong Guang Minis in January alone.

Public transit is also getting a revamp from EV companies. Proterra, a company that makes electric public and school buses, inked a deal to go public via billionaire investor Chamath Palihapitiya’s SPAC Arc Light Clean Transition Corp. in January.

Read more: Buy these 30 stocks that are best-placed to benefit from the pandemic’s ‘seismic shifts’ and continue surging in its aftermath, BTIG says

Many analysts argue the EV boom is set to continue. Wedbush’s Dan Ives said in a recent note to clients that he believes the “EV party and transformation is just beginning as this industry is on the cusp of a $5 trillion market opportunity over the next decade.”

Haefele and his team agree with Ives, detailed below are three reasons why they see a long way to run for the EV boom.

  1. “Electric vehicles continue to rapidly gain market share. Electric vehicle sales have been rapidly gaining market share. The diverging paths of automakers have been confirmed during the pandemic. While the overall auto market contracted by 15% in 2020, global electric vehicle sales rose by 43%, reaching a 4.2% market share. This trend looks set to continue and will benefit pure EV makers, as well as traditional automakers that are adapting fastest to the growing consumer preference for electric vehicles,” Haefele and co. wrote.
  2. “Electrification of vehicles is still ‘The Next Big Thing’ in the automotive industry. Tighter emission regulations mean there is no alternative to the switchover from combustion to electric engines – be they battery electric vehicles (BEV), plug-in hybrid electric vehicles (PHEV), or fuel cell vehicles (FCV). This move toward electric has also been embraced by traditional automakers such as Volkswagen, which has pledged investment of over EUR 50bn in its EV strategy as it aims to catch up with Tesla,” Haefele and co. wrote.
  3. “The transformation underway in the auto sector goes beyond drive trains. We see parallel technological advances in the sector, along with a shift in consumer preferences away from ownership. On technology, progress is being made in areas such as autonomous driving, helped by the rollout of 5G networks. On the issue of ownership, increasing mobile connectivity and changing preferences among younger age groups are leading to the rise of car-sharing models. In the future, using a car will not automatically mean owning one. Overall, we foresee potential sales of some USD 400bn connected to our Smart Mobility theme by 2025, of which electrification represents more than half, an eight- to nine-fold increase on today’s figure,” Haefele and co. wrote.

Read more: An innovation ETF is crushing competitors with 40% returns this year even as tech stocks flounder. The provider breaks down its 2-part playbook for selecting moonshots – and knowing the perfect time to sell

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Nikola downgraded to ‘sell’ by CFRA amid supplier issues and potential ‘legal risks’

Nikola garbage Truck
  • CFRA analyst Garrett Nelson downgraded shares of Nikola to “sell” and lowered his price target to $12 on Thursday.
  • The analyst cited “supplier issues” with the Tre semi-truck and potential ‘legal risks’ from false statements in his reasoning.
  • The company’s 10-K confirmed several allegations made by Hindenburg Research in Sept. of last year.
  • Visit the Business section of Insider for more stories.

CFRA downgraded shares of Nikola to a “sell” on Thursday and lowered the price target to $12 per share after the electric-vehicle maker reported earnings.

Senior analyst Garrett Nelson cited “supplier issues” and potential “legal risks” as the main reasons for the downgrade.

Nikola was able to beat consensus earnings estimates in Q4 posting quarterly EPS of -$0.17 versus an expected -$0.24, but the pre-revenue company revealed its 2021 deliveries for the Tre semi-truck would total only 100 units due to supplier issues, down from 600.

As for legal risks to the company, Nikola disclosed in its 10-K that an internal review conducted by Kirkland & Ellis found at least nine statements made by the company and former CEO Trevor Milton were “inaccurate in whole or in part.”

This confirmed several allegations made by short seller Hindenburg Research back in September of last year. However, the 10-K also said that other statements made by Hindenburg were incorrect.

Nikola’s founder Trevor Milton stepped down on September 21, 2020, after fraud allegations were made public. Recent reports out of CNBC indicate Nikola has been forced to pay $8.1 million for its founder’s legal fees even after his departure.

Analyst Dan Ives of Wedbush wasn’t as concerned about potential legal risks as his peers, however. In a note to clients on Friday Ives said, “we would characterize last night as a positive step in the right direction after navigating a Category 5 storm post the short report/Trevor departure.”

Ives called Nikola a “prove me” story and cited investments into hydrogen-powered battery technology, a friendly clean energy environment from the Biden administration, and partnership momentum as his reasoning.

Ives holds a “neutral” rating and a $25 price target on Nikola.

On the other hand, CFRA’s Garret Nelson said, “even absent its legal issues, we think NKLA stacks up less favorably versus other EV names.”

Nikola holds three “buy” ratings, eight “neutral” ratings, and now one “sell” rating from analysts.

Shares of the EV maker were down 4.99% as of 11:36 a.m ET on Friday.

NKLA chart
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Tesla slips as report says the EV maker will idle Model 3 line at its Fremont factory for two weeks

FILE PHOTO: The Tesla factory is seen in Fremont, California, U.S. June 22, 2018. REUTERS/Stephen Lam
FILE PHOTO: The Tesla factory is seen in Fremont

Shares of Tesla slipped as much as 4% on Thursday after a report said the EV maker will idle the Model 3 line at its Fremont, California factory for two weeks.

Staff on the Model 3 line in Fremont were told production would be shut down until March 7 without an explanation, according to unnamed Bloomberg sources.

The workers were told they would be paid through the end of this week, but would not be paid through next week, and were advised to take vacation time if they had it.

Analyst Dan Ives of Wedbush Securities said the shutdown is most likely “chip shortage driven” in a note to clients Thursday morning. Ives said he was “not overly concerned” with the supply chain and factory disruption and argued it won’t change “the overall delivery trajectory for 1Q and 2021” for Tesla.

Automobile manufacturers have been facing a severe semiconductor shortage over the past few months.  

Semiconductors, also known as chips, are used in everything from cell phones to fighter jets, and rising demand caused by a 5G explosion, cryptocurrencies’ rise, the EV boom, and a number of other factors are leading to serious supply constraints.

Earlier this month the supply issues forced GM to shut down three of its plants, and Ford and GM are expected to lose roughly $4.5 billion due to the shortage.

Despite the shortage, Dan Ives said he still believes the “$5 trillion EV market over the next decade will have many winners around the globe especially with a Biden-driven green tidal wave on the horizon in the US.” Ives sees unit sales out of China driving the Tesla story going forward, instead of bitcoin or a chip shortage.

Still, Wedbush’s Chief Technology Strategist Brad Gastwirth said in a note to institutional investors that he believes the chip shortage will “last longer than what some may believe,” even with a $37 billion relief bill that could come out of Congress.

On Wednesday President Joe Biden said he would seek $37 billion in funding to help supercharge the US semiconductor supply.

“I’m directing senior officials in my administration to work with industrial leaders to identify solutions to the semiconductor shortfall,” Biden said. “Congress has authorized a bill but they need $37 billion to make sure that we have this capacity. I’ll push for that as well.”

Despite this push, Wedbush said they “do not see these actions improving near-term shortages or even creating an environment less susceptible to the current supply/demand imbalance.”

This bearish news for Tesla comes as the company continues to cut prices on vehicles across its lineup and around the globe (1) (2).

Tesla traded down 5.53% on Thursday as of 1:23 p.m. ET.

tsla chart
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Tesla slips as report says the EV maker will idle Model 3 line at its Freemont factory for two weeks

FILE PHOTO: The Tesla factory is seen in Fremont, California, U.S. June 22, 2018. REUTERS/Stephen Lam
FILE PHOTO: The Tesla factory is seen in Fremont

Shares of Tesla slipped as much as 4% on Thursday after a report said the EV maker will idle the Model 3 line at its Freemont, California factory for two weeks.

Staff on the Model 3 line in Fremont were told production would be shut down until March 7 without an explanation, according to unnamed Bloomberg sources.

The workers were told they would be paid through the end of this week, but would not be paid through next week, and were advised to take vacation time if they had it.

Analyst Dan Ives of Wedbush Securities said the shutdown is most likely “chip shortage driven” in a note to clients Thursday morning. Ives said he was “not overly concerned” with the supply chain and factory disruption and argued it won’t change “the overall delivery trajectory for 1Q and 2021” for Tesla.

Automobile manufacturers have been facing a severe semiconductor shortage over the past few months.  

Semiconductors, also known as chips, are used in everything from cell phones to fighter jets, and rising demand caused by a 5G explosion, cryptocurrencies’ rise, the EV boom, and a number of other factors are leading to serious supply constraints.

Earlier this month the supply issues forced GM to shut down three of its plants, and Ford and GM are expected to lose roughly $4.5 billion due to the shortage.

Despite the shortage, Dan Ives said he still believes the “$5 trillion EV market over the next decade will have many winners around the globe especially with a Biden-driven green tidal wave on the horizon in the US.” Ives sees unit sales out of China driving the Tesla story going forward, instead of bitcoin or a chip shortage.

Still, Wedbush’s Chief Technology Strategist Brad Gastwirth said in a note to institutional investors that he believes the chip shortage will “last longer than what some may believe,” even with a $37 billion relief bill that could come out of Congress.

On Wednesday President Joe Biden said he would seek $37 billion in funding to help supercharge the US semiconductor supply.

“I’m directing senior officials in my administration to work with industrial leaders to identify solutions to the semiconductor shortfall,” Biden said. “Congress has authorized a bill but they need $37 billion to make sure that we have this capacity. I’ll push for that as well.”

Despite this push, Wedbush said they “do not see these actions improving near-term shortages or even creating an environment less susceptible to the current supply/demand imbalance.”

This bearish news for Tesla comes as the company continues to cut prices on vehicles across its lineup and around the globe (1) (2).

Tesla traded down 3.28% on Thursday as of 11:09 a.m. ET.

Tesla chart
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Tesla has ‘significant first-mover advantage’ in the electric vehicle space – but 3 smaller names are also poised to succeed as EV sales climb in 2021, CFRA says

Fisker Ocean
The Fisker Ocean.


Tesla has established a “significant first mover advantage” over new entrants in the ever-expanding electric vehicle market, but a few other smaller names stand out, according to CFRA’s Garrett Nelson.

In a note published Wednesday the senior equity analyst said Amazon-backed Rivian, Lucid Motors, and Fisker will emerge as “success stories,” as EV sales climb in 2021.

Nelson uses four categories to analyze emerging electric-vehicle manufacturers: 1) the specs (price, range, etc.) and overall attractiveness of their initial vehicle models; (2) financial considerations such as their funding sources, balance sheets, and liquidity; (3) the growth opportunity of their sub-industry; and (4) the experience and credibility of management. 

He said all three names fare well in each category. Additionally, all three automakers will be among the first to bring electric vehicles to the road, with Rivian and Lucid expected to put models on the road this year and Fisker in late 2022. 

Fisker debuted in public markets in October, while Lucid Motors announced a merger with SPAC Churchill Capital Corp. IV on Monday. Rivian is looking to go public as soon as September at a valuation of $50 billion, Bloomberg reported earlier this month. 

Nelson added that Tesla has an advantage over new entrants; citing how the company increased its US EV sales volume by over 50% last year.  

“With all the talk of increased competition from new EV models in 2020, Tesla grew its market share from an estimated ~58% share in 2019, as models like the Audi e-Tron, Jaguar I-PACE, and Nissan LEAF largely disappointed from a sales perspective,” Nelson added. 

CFRA forecasts that US EV sales will grow by over 50% to exceed 500,000 units in 2021, especially if the Biden administration passes legislation that could benefit EVs. The research firm has a “strong buy” rating on Fisker, and a “hold” rating for Tesla. 

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