Shulou(Shulou.com)11/24 Report--

Beijing, January 15 (Xinhua) is the first recession in the electric vehicle industry coming, or is it coming? Electric car stocks plummeted at the end of 2022, a rout reminiscent of the bursting of the dotcom bubble 20 years ago.

Tesla's momentum is still promising, just like the Internet industry at that time, and now some of the leaders in the electric vehicle industry seem to be long-term winners, especially Tesla. But there are also some young companies that may not have enough cash to survive the downturn, and some in the middle have done their best to prepare, but their fate may depend on how bad the situation is. Examples include electric car startups Lucid, Fisker and Rivian.

The recession test the market does not know how to deal with Tesla's sharp price cuts as the economy is at the inflection point between abating inflation fears and widespread expectations that a recession will begin in 2023. The electric car leader cut prices first in China and then in the United States and Europe on January 13. Analysts such as Ronald Jesikow of Guggenheim securities say this could make Tesla's profit margins 25 per cent lower than widely expected on wall street and drain the profits of all Tesla's competitors.

However, optimists such as Dan Ives, an analyst at Wade Bush Securities, believe that starting the transformation of electric vehicles in the face of macroeconomic uncertainty is the right and positive move. "A lot of internet companies have failed," says Mr Ives. "for an industry in its infancy, they have not experienced the stress tests of a severe recession."

The theme of "the first Electric vehicle Recession" has a big assumption: the first is a recession, whether in the United States or China. In December last year, as Tesla took production and price cuts to cope with falling demand and inventory growth, delivery of the company's domestic electric vehicles fell 44 per cent month-on-month and 21 per cent year-on-year.

Tesla has cut prices frequently recently in the United States, where most economists and CEO believe there may be a recession this year, although last week's market rally may reflect a change in the investor outlook and more people believe that the economy will have a "soft landing." Mark Zandi, chief economist at Moody's Analytics, predicts that the US economy will have a "slow recession" that lasts for several months, but that growth will not turn completely negative. Both scenarios could hurt overall car sales, which hit their worst in a decade last year, but some industry executives are now slightly more confident of a rebound, but carmakers are becoming more cautious about the outlook for electric cars in the short term. Both scenarios may be too pessimistic if the economy reacts positively to the current slowdown in inflation.

China's economic outlook is also crucial. China accounts for more than half of the world's electric vehicle sales, according to Clean Technica, a clean technology company. The International Monetary Fund says China will avoid recession this year and its economy can grow by 3.8%.

Just like the recession during the dotcom bubble, if it does happen, it doesn't necessarily mean that electric car sales will fall. Sales of most models rose sharply in the United States and Asia last year. The more important question is whether electric car companies are growing fast enough to continue to create jobs, and whether companies other than Tesla can make a profit when investors expect it. Or make a profit before they run out of cash raised to cover start-up losses.

This is very similar to what happened to Internet companies such as Amazon and eBay between 2000 and 2001. At the time, a sell-off in internet stocks was under way, just as the share prices of electric car companies such as Tesla, Fisk and Lucid fell sharply last year: Tesla fell 65 per cent and Fisk 54 per cent Lucid fell 82 per cent. Then, as now, weaker competitors, such as today's electric carmakers Lordstown Motors, Faraday Future and Canoo, were scrambling to avoid running out of cash as the economic slowdown approached, either cutting costs or raising more money from investors.

"We are focused on the stability of the balance sheet and the ability to raise more capital. We think it will be difficult," said Greg Bissuk, AXS Investments CEO of New York investment company, referring in particular to medium-sized electric carmakers.

Tesla is like Amazon during the dotcom bubble, but at the same time, the revenues of Internet companies continued to grow rapidly, and businesses destined to survive began to turn a profit between 2001 and 2003. Today, despite the impact of the epidemic, electric vehicle sales in China are still growing, while electric vehicle sales in the United States are up 52%. At the end of last year, electric vehicles accounted for 6% of the u.s. light vehicle market, while at the end of 2000, only 1% of American online retail sales were electric cars.

Tesla still has the advantage? For electric carmakers, the impact of the recession is likely to be slower growth, but not the negative growth experienced by the overall economy during the downturn, as new technologies continue to gain market share.

Garrett Nelson, a research analyst at the US Center for Financial Research and Analysis (CFRA), says Tesla is still the best electric car maker at the moment. Ives, an analyst at Wade Bush Securities, said that when Tesla released its fourth-quarter results on January 25, the company expected to still generate about $4 billion in cash flow by the end of 2022, while at the end of the third quarter, the company's cash, cash equivalents and short-term marketable securities are about $21 billion, so there is no risk of burning money.

"We think Tesla's share price will rebound quickly this year." Nielsen said. He believes Tesla is the first choice among all automakers and points out that economists at CFRA do not expect a recession. Tesla is trading at 24 times this year's expected earnings per share, compared with expected earnings per share growth of just 25 per cent this year. For a growing company that has room to continue to expand rapidly, that number is not high.

Twitter distracts Musk, Nielsen said that after the price cut, Tesla's profit margin will narrow, but sales will increase. "this should expand the company's competitive advantage and make more Tesla cars eligible for a $7500 federal electric vehicle tax credit." He said.

Of course, Tesla has his own problems, and his sales growth slowed later this year. Tesla's sales rose 32% in the fourth quarter, down sharply from earlier this year and falling below wall street expectations for the second consecutive quarter. Mr Ives said the eccentricity of Tesla CEO Elon Musk (Elon Musk) when he became Twitter's new boss raised concerns about how closely Mr Musk would follow the electric carmaker. If Tesla's decline accelerates, how quickly will he react?

"the biggest problem is Twitter." Nielsen pointed out.

"in a darker macroeconomic situation, it is time for Mr Musk to lead Tesla through this period of weak demand, rather than sitting on the sidelines as Wall Street thought," Mr Ives said. "this year is Tesla's year of fork in the road, which either lays the foundation for the next chapter of growth or continues to decline."

Is the money-burning model sustainable? In the meantime, startups Lucid, Rivian and Fisk face a series of higher risks, but may eventually make it through.

However, Tesla's price cut could cause them trouble: Fisk's share price fell nearly 10 per cent after Tesla announced the price cut, as it brought the price of the Model Y close to the Fisk SUV Ocean, which has a median price of about $50, 000.

Of the three companies, Rivian holds the most cash. At the end of the third quarter, its cash, cash equivalents and restricted cash were $14 billion. Fisk holds $825 million in cash and cash equivalents, while Lucid holds $3.85 billion in cash, cash equivalents and investments.

But every company is still burning money. So do they have enough money to survive the downturn? Fisk lost about $480 million in cash flow and invested an additional $220 million in the 12 months to September, meaning his cash would last for a year or two if losses and investments did not slow.

"our commitment to streamlining our business model has enabled us to build a sound balance sheet thanks to our strict management of cash," Henryk Henrik Fisker, CEO, said in a statement. "We have the ability to meet future economic challenges and seize opportunities to take action."

In the first nine months of 2022, Lucid spent more than $2 billion on operating cash flow losses and capital investments and said its cash would cover plans "at least until the fourth quarter of 2023". Lucid's recent production and delivery figures did exceed expectations, although expectations have been reduced. The cumulative amount of money burned by Rivian is equivalent to more than two years of recent cash flow losses and investments.

However, the three companies can also expand their cash flow by raising more capital. In fact, at least two companies have already started to do so. Lucid raised another $1.515 billion in December last year, mainly from public investment funds in Saudi Arabia. Fisk has applied for $2 billion in financing from the Securities and Exchange Commission through "early registration" and has so far raised $116 million. The three companies should also provide financial guidance for 2023 during the earnings season, including an update on capital expenditure and whether cash flow losses will narrow as they start delivering more cars.

Fisk began selling his first model, the Ocean, in mid-November last year, and plans to launch a lower-priced SUV Fisker PEAR next year. Due to supply chain problems caused by COVID-19 's epidemic, Rivian fell short of its target of 25000 vehicles in 2022 due to a shortage of parts. The company has not yet disclosed how many cars it will ship this year. In November last year, Rivian also suspended its cooperation with Mercedes-Benz and temporarily ended its plan to develop commercial vehicles. Rivian said it would focus on its consumer business and other business projects, mainly the sale of delivery trucks to Amazon, which offer better risk-adjusted returns. The move will help avoid the pressure on startups on a capital base.

Which companies are likely to fail? The worst prospects in the electric car market are companies such as Faraday Future, Canoo and Lordstown, which went public through mergers with special purpose acquisitions (SPAC). Since then, they have lost most of their equity value.

In November, Lordstown announced a new investment from Foxconn, which will own a 19.9 per cent stake in Lordstown upon completion of the deal to help expand production of its first pickup truck and shore up $204 million in cash on its balance sheet. Foxconn has agreed to produce Fisk cars at the Lordstown plant in Ohio, which it acquired in May, and start production in 2024. Before raising money from Foxconn, Lordstown issued a continuing business warning in 2021.

Faraday's future is in jeopardy, but Nielsen, an analyst at CFRA, says companies that need to raise more money, such as Faraday Future, Canoo and Lordstown, may find that more sceptical capital markets hinder their access to capital than the capital markets that funded special-purpose buyout companies during the boom. He said weaker competitors included Electro Mechanica, Arrival, a UK commercial vehicle maker, and Green Power Motor, a Canadian electric bus maker. He even listed Fisk, Lucid and Rivian as companies at risk as a result of market tightening.

"these companies have business plans but no business and they get outrageous amounts of money," Mr Nielsen said. "in our view, you will see more bankruptcy filings, but the market will rebalance, but it is hard to imagine that we have bottomed out."

However, Nielsen believes that the electric car boom is real. In his opinion, Tesla is the best bet in the whole auto industry this year. But it is doubtful that after the dotcom boom and bust, Amazon rebounded from its lows in 2002 to a tenfold increase in 2008, but did not completely shake off the highs it hit in 1999 until 2010. EBay recovers faster, but cannot maintain momentum.

"for those companies that have the capital to survive 2023, we bet all our money on them," said one investor who recently made money shorting the electric car industry.

Welcome to subscribe "Shulou Technology Information " to get latest news, interesting things and hot topics in the IT industry, and controls the hottest and latest Internet news, technology news and IT industry trends.