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Tesla’s share price slump does not reflect a bright future for electric vehicles

by SuperiorInvest

Tesla has missed its ambitious production targets, and the lower share price says a lot about the broad challenges facing electric vehicle makers. On the supply side, Tesla boss Elon Musk complained about continued disruptions to supply chains and semiconductors in particular. The demand side is weighed down by consumers struggling with high inflation, while the decision to cut prices on some Tesla models by up to 30% reflects growing competition in the EV market, according to some analysts.

Tesla’s stock price dropped about 65% last year, and while there are experts better positioned to analyze the performance and expectations of Tesla as a company, I can provide insight into the unstoppable growth of electric vehicles.

The future undoubtedly belongs to EVs, but the transition away from internal combustion engine (ICE) vehicles faces short-term headwinds. The war in Ukraine and the COVID-19 pandemic have exacerbated existing deglobalization trends. Supply chains, particularly for some critical metals, are experiencing increased vulnerability. However, our analysis shows that for most critical resources such disruptions will eventually be circumvented by alternative battery chemistries, new manufacturing sites and new materials. However, in the short term to 2030, the effects of supply chain disruptions will delay the transition. For example, according to our Energy transition outlookWe now expect the timing of the ‘benchmark’ for EV adoption – when EVs account for 50% of new car sales – to be delayed by one year to 2033 compared to our analysis a year ago. Still, we expect that in 10 years’ time, half of all cars worldwide of fully electric cars sold.

The efficiency gains and lower costs associated with electric vehicles have convinced the management of most major automakers to move away from internal combustion engines and spawned many start-ups. However, there is still skepticism among consumers. This is partly due to concerns about charging infrastructure and range concerns. This is also because the initial cost of EVs is generally higher. Although electric cars already have a much lower running cost per 100 km, private buyers look at the purchase price rather than the total cost of ownership. In fact, EVs are cheaper than ICE vehicles in most places over their lifetime. However, consumer behavior often lags behind cost developments because established technology always feels like a safe bet.

Policy remains important to the speed of EV adoption. Norway – which bought as many Teslas as last year Elon Musk felt compelled to travel to the country to thank its residents – it has been giving electric cars tax breaks and preferential treatment for several years, and in 2022 79% of cars sold in the country were fully electric. In neighboring Denmark, where government policy was less encouraging, the figure was around 8%.

By mid-century, even allowing for the dampening effect of car sharing and automation, the global passenger vehicle fleet will grow by about 50%. This does not mean that the demand for energy from the road sector will increase. In fact, it’s the exact opposite. Energy needs in the road sector will be significantly lower in 2050 than today, mainly because electric motors are around 90% efficient and are therefore three to four times more efficient than combustion engine vehicles, which are typically around 25-30% efficient. While more than three-quarters of vehicles worldwide (78%) will be electric vehicles in 2050, they will only account for around 30% of the road transport sub-sector’s energy demand. In the same time frame, fossil fuel oil will account for almost 60% of the global energy demand of the road transport sub-sector, even though ICE vehicles make up a much smaller share of the global fleet.

Electric cars will make up almost 80% of the global passenger car fleet in 2050. Even if the country does not emulate Norway’s progressive electric car policy, the higher efficiency will give them a market leading position.

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