EV Disaster: Battery Suppliers Scream Emergency Warning...

Good morning everyone and happy Sunday!

Yesterday, I mentioned that Elon probably won’t be having a good weekend due to the "slap in da face" that UBS decided to hand Tesla with its “mic drop” of a downgrade. But stepping back and looking at a 30,000 ft view, it seems like the EV industry as a whole is receiving a full on gut punch. 

(Source: Giphy) 

In short, the electric vehicle industry is facing a sobering reality check as battery makers grapple with a market that hasn't lived up to its lofty expectations. Once heralded as the vanguard of a transportation revolution, these companies are now confronting the consequences of overambitious projections and sluggish consumer adoption. 

So EV’s along with AI have been overhyped? Hmmm interesting, more details please… 

For instance, SK On, a major South Korean battery producer, recently declared a state of "emergency management," a stark indication of the challenges facing the sector. The company, which has invested heavily in U.S. plants to supply Ford and Volkswagen, is now reassessing its strategy in light of disappointing EV sales. 

(Source: Financial Times) 

However, it’s not just SK On that’s feeling pain, this sentiment is echoed across the industry. For example, Northvolt, a European battery manufacturer once seen as the continent's answer to Asian dominance, has announced a strategic review that may delay plans for new factories.

(Source: Reuters) 

Similarly, LG Energy Solution, (one of Tesla’s longtime battery suppliers) and another key player, has paused work on a portion of its $5.5 billion Arizona facility due to the slowdown.

(Source: Utility Drive) 

But, but… why, you ask? 

Well the root of this industry-wide recalibration (a fancy word for “sh&t” is legit hitting the fan) lies in the disconnect between projected and actual EV demand. In Europe, EV sales grew a modest 2.4% in the first five months of 2024, with May actually seeing an 11% year-on-year decline. 

(Source: Financial Times) 

But it ain’t just the chaps across the Atlantic that are seeing the warning signs, because the U.S. market tells a similar story, with General Motors selling just 21,930 EVs in Q2 of this year, a far cry from its ambitious forecast of 1 million sales by 2025. Uhhh yeah, doesn’t look like that’ll happen buddy…

(Source: Giphy) 

So understandably, this slowdown is clearly forcing automakers to reassess their electrification timelines. Mercedes-Benz, for instance, has pushed back its goal of having half its sales come from battery-powered or hybrid vehicles from 2025 to 2030. 

(Source: Reuters) 

But what’s really interesting is that the battery industry's current predicament doesn't follow the typical boom-and-bust cycle seen in other sectors. Instead, it's facing a potential bust without ever really experiencing the anticipated boom. Sure there’s been hype… I mean a whole lotta hype but an actual boom, not so much my friend. 

(Source: Giphy) 

Especially when you take into the fact that the massive investments were made based on consultants' projections and automakers' optimistic forecasts, (not actual demand) - which now turns out to have been proven overly bullish in the face of economic headwinds and slower-than-expected consumer adoption. Shocker… 

Plus, as if that wasn’t enough, adding to the complexity of all this is the dominance of Chinese manufacturers. Companies like CATL and BYD command a combined 53.2% of the global battery market, putting additional pressure on their international competitors. Meaning as the buffet table is getting smaller with CATL and BYD already hogging it, the fight for the crumbs just got even more real.  

(Source: Giphy) 

So as the industry navigates these choppy waters, it’s no secret that battery makers are being forced to reevaluate their strategies. Cost-cutting measures, exploration of new technologies, and hopes for more aggressive government incentives are all on the table. While the long-term outlook for EVs remains positive, the path to widespread adoption is proving longer and more winding than initially anticipated. 

(Source: Giphy) 

But when it comes to investors, well here’s the takeaway to ponder this morning:

While Tesla recently beat delivery estimates, earning reports aren’t looking too hot for Ford and Volkswagen. With Ford reporting on July 24th, and Volkswagen reporting on August 1st, the main focus will be if their numbers will actually show the pain that is being felt within its own battery suppliers. 

(Source: Giphy) 

Previous earnings for these companies were kind of a mixed bag already with Ford beating their EPS by 12.16% but missing key revenue numbers by -3.82% while Volkswagen was down -24.49% year-over-year on its EPS. So with all the disruption and slow down that’s taking place for battery suppliers, it will be interesting what these two companies tell us in the short term. 

However, with that said, while the EV revolution isn't over, it's clear that the industry is experiencing a period of "WTF is going on!". For battery makers, the challenge now is to weather this storm while positioning themselves for the eventual uptick in demand. 

(Source: Giphy) 

As one industry analyst put it, "The question for Asian battery makers is how to navigate this period of disappointing growth. For European battery makers, it's whether they have a future at all." Ouch.

So with that all said, 1. I hope you’re having a wonderful weekend, and 2. If you’re not, well just be glad you aren’t a CEO for a European battery supplier, because as stated in previous articles… that would suuuuck. 

(Source: Giphy) 

Stocks.News holds positions in Tesla and Ford as mentioned in the article.