Shaking the Electric Vehicle Sector: A Look at Recent Developments

Recent weeks have brought tumultuous times for the electric vehicle sector. Despite a brisk 40% increase in electric vehicle sales in Q4 to 317,168 units compared to the previous year, the pace has somewhat slowed, up only 1.3% sequentially, sparking concern among industry analysts and market watchers.

These worries were further fueled by stories of unsold electric vehicles on dealer lots, supply chain disruptions in the Red Sea, production guidance reductions from Lucid Group (LCID) and Fisker (FSR), as well as European regulators probing BYD Company Limited (OTCPK:BYDDF), Geely Automobile (OTCPK:GELYF) (OTCPK:GELYY), and state-owned SAIC. Notable pullbacks in EV targets from General Motors (GM) and Ford Motor (F) added to the sector’s woes.

Hertz Global’s (HTZ) announcement that it would be selling off a third of its electric vehicle fleet to purchase gasoline-powered cars served as another potential blow to the sector. The decision was attributed to lower demand for electric vehicles and elevated repair costs. However, the rental giant indicated that it would take steps to improve its profitability by making more charging stations available, building stronger relationships with EV manufacturers, and facilitating a seamless experience for customers renting electric vehicles.

Analysts at Morgan Stanley highlighted the significance of Hertz’s move, linking it to broader challenges within the electric vehicle space. Adam Jonas, the analyst voiced concerns that as the EV units leave Hertz’s fleet, it could exert incremental negative pressure on residual values for the EV market as a whole, with potential repercussions for major players like Tesla (NASDAQ:TSLA).

Despite the near-term headwinds in the core auto business, Tesla (TSLA) has received an Overweight rating from Morgan Stanley, with potential catalysts like the Dojo supercomputer, Optimus robotic humanoid, Edge AI, EV infrastructure announcements, and new model introductions waiting in the wings. Additionally, Rivian Automotive (RIVN) has retained its Conviction List status, demonstrating robust demand trends and holding up well in the used vehicle market.

While the year ahead may pose significant challenges for the electric vehicle industry, analysts believe that it could also lead to the emergence of a few prominent winners. Notably, BYD Company (OTCPK:BYDDF) has continued to impress analysts, recently commencing sales of electric vehicles in Indonesia, the world’s fourth most populous nation.

Auto Sector Ratings: Despite the prevailing negative sentiment in the auto sector, Ferrari (RACE), Stellantis (STLA), and Rivian Automotive (RIVN) have traded above their 200-day moving averages, reflecting resilience in the face of adversity. Moreover, certain auto suppliers including QuantumScape (QS), Hyliion Holdings (HYLN), Modine Manufacturing (MOD), and Superior Industries (SUP) have recorded double-digit increases over the last six weeks. In quantitative analysis, only five automobile manufacturing stocks have earned a Strong Buy or Buy Seeking Alpha Quant Rating.

As of January 13, Toyota Motor (TM), Subaru Corporation (OTCPK:FUJHY), Nissan Motor (OTCPK:NSANY), Li Auto (LI), and General Motors (GM) held the coveted Strong Buy rating, signaling the potential for impressive returns. The short squeeze candidates in the sector if positive news were to break include Fisker (FSR), Lucid Group (LCID), VinFast Auto (VFS), and Faraday Future Intelligent Electric (FFIE).

Seeking Alpha analysts have also expressed consensus Buy ratings on Volkswagen (OTCPK:VWAPY), Stellantis (STLA), Subaru Corporation (OTCPK:FUJHY), Mercedes-Benz Group (OTCPK:MBGAF), and BYD Company (OTCPK:BYDDF), indicating pockets of strength within the sector.