## Car Investors Look to the Second Half of 2023: Key Lessons and Promising Stocks
The second quarter of the year has been a whirlwind for car investors, with events ranging from production challenges to bankruptcy filings and everything in between. As we reflect on the past three months, it is important to take a step back and consider the valuable insights gained from this period. Additionally, it is worth exploring potential investment opportunities for the second half of the year. One stock that stands out is Tesla (TSLA).
Lesson 1: The Rise of the Strong
Although we await the complete data set, it is highly likely that the second quarter witnessed yet another record-breaking period for electric vehicle (EV) sales in the United States, experiencing a growth of approximately 10% compared to the first quarter of 2023.
However, capitalizing on the surge in EV sales is no easy feat. The second quarter saw the downfall of an early-stage EV startup – Lordstown Motors (RIDEQ) – as it filed for bankruptcy protection in June. The company faced difficulties in manufacturing electric pickup trucks and securing adequate funding for their production.
Tesla’s Triumph
While many players in the market struggled, Tesla emerged as the ultimate beneficiary of surging sales. Throughout the first and second quarters of 2023, Tesla managed to expand its market share in the United States, surpassing competitors such as Ford Motor (F), General Motors (GM), and Rivian Automotive (RIVN); three renowned American companies vying for Tesla’s EV dominance.
This accomplishment is undeniably impressive. While it is unlikely that Tesla will maintain its market share at over 60%, even achieving a 20% share would already be considered a noteworthy achievement. For comparison, the world’s largest automakers – Toyota Motor (TM) and Volkswagen (VOW, Germany) – each hold around 10% of the global market for light vehicles.
Glimpses of Opportunity
As we enter the second half of 2023, car investors should keep an eye on Tesla and its potential for continued growth. The EV sector is undoubtedly rapidly evolving, and identifying promising stocks within this realm can lead to fruitful investments.
Investors must navigate through the fluctuations and challenges within the industry carefully. Understanding the lessons learned from the second quarter will be crucial in making informed decisions moving forward.
Remember, in the ever-changing world of car investments, adaptability and foresight are paramount.
EVs: Affordable and Accessible Now
Tesla’s recent price reductions have not only increased the company’s market share but have also made electric vehicles (EVs) more financially viable.
In the past, EVs were considered luxury vehicles due to their high price tag. However, thanks to price cuts and tax credits, many EVs are now comparable in cost to gasoline-powered cars.
Let’s take a look at Tesla’s top-selling long-range Model Y. With a starting price of around $50,500, it is only about $2,000 more expensive than the average new car in the U.S. This is a significant reduction from the previous $10,000 price premium.
Additionally, the availability of a $7,500 federal tax credit further lowers the cost of the long-range Model Y, making it approximately $5,500 cheaper compared to an average new car in the U.S.
Moreover, there are even more affordable options available in the EV market. For instance, the Tesla Model 3 is priced below the Model Y, and the Chevy Bolt is even cheaper than the Model 3. Car buyers now have a wide range of affordable EVs to choose from.
Affordability is crucial because consumers are currently facing financial pressures. In fact, during Q2, a record-breaking percentage of new car buyers financed vehicles with monthly payments exceeding $1,000. More than 17% of buyers are dealing with four-figure monthly payments.
To put this into perspective, these payments account for approximately 25% of pretax monthly wages for the average individual aged 25 to 34. Consequently, many people within this age group may find it difficult to afford a new car altogether.
The combination of rising interest rates and increasing new car prices is primarily responsible for this record-breaking trend. However, as car prices start to decrease and interest rates stabilize, there may be some respite for car buyers in the near future.
Overall, the affordability and accessibility of EVs have drastically improved. With a wider selection of reasonably priced options and potential relief from high monthly payments, car buyers can now consider EVs as a more financially viable choice.
Few Cars
It’s worth asking how consumers are handling higher payments. The answer is some aren’t.
Cars just aren’t selling like they used to. Annual light vehicle sales are approximately 1 million to 2 million units lower than pre-pandemic levels, marking a drop of roughly 10%. As a result, some people have been priced out of the new car market.
Sales Rise
Despite the challenges, there is a recent improvement in sales. During Q2, sales experienced a 2% increase compared to Q1 and a significant 9% rise compared to Q4.
Supplier Benefits
Increased sales volume brings significant advantages for suppliers in the automotive industry. While suppliers prioritize total sales rather than the final price of a sale to customers, automakers value both aspects. Consequently, BofA Securities analyst John Murphy recently upgraded several auto supplier stocks. He raised shares of BorgWarner (BWA), Magna International (MGA), and Aptiv (APTV) to Buy from Hold. These are three stocks investors can consider for the second half of 2023.
A New Standard
One of the most surprising developments in Q2 was the widespread adoption of a specific charging plug for electric vehicles (EVs). Almost every major automobile manufacturer announced their intention to use the Tesla EV charging plug in North America.
While it may not be officially confirmed by every manufacturer, the list is practically complete. GM, Ford, Rivian, Polestar Automotive (PSNY), Volvo, and Mercedes-Benz (MBG. Germany) have all made statements declaring their adoption of the Tesla plug.
One Plug to Rule Them All
The benefits of a universal plug for electric vehicles (EVs) are abundantly clear. Instead of dealing with multiple adapters, a single plug is all that’s needed. After all, who wants to fumble with an adapter just to charge their EV from IKEA? Furthermore, Tesla, with its extensive fleet of EVs on the road and an expansive charging station network, has emerged as a front-runner in the race for a standardized plug. And to top it off, their plug is noticeably smaller and easier to handle compared to the competition’s CCS plug.
The transition to a universal standard is a win-win-win scenario. First and foremost, Tesla emerges victorious. Not only does the company generate additional revenue from non-Tesla EV drivers utilizing their charging network, but these drivers also become acquainted with the scope and reliability of Tesla’s charging infrastructure.
Other automakers also reap the rewards. Their customers gain access to the largest network of fast chargers, making it much more convenient to own and sell EVs from different manufacturers.
The entire EV industry benefits from this harmonization as well. A robust and extensive charging infrastructure goes a long way in alleviating range anxiety, a significant concern among potential EV buyers. Moreover, it streamlines operations for the industry as a whole. Just imagine if drivers had to consider the shape of a gas pump before pulling into an Exxon station when their tank is nearly empty. Simplifying and standardizing the charging process eliminates unnecessary complications.
Tesla’s partnerships with various automakers have contributed to one of its most successful starts to a year. During the first half of 2023, Tesla’s shares surged by an impressive 113%, outperforming the S&P 500 and Nasdaq Composite, which gained approximately 16% and 32% respectively in the same period. This type of growth has only been matched twice before, in 2013 and 2020. In 2013, Tesla’s shares experienced a 40% increase during the second half of the year, while in 2020, they skyrocketed by approximately 230%.
In conclusion, adopting a universal plug for EVs provides undeniable advantages for all parties involved. It simplifies the charging process, enhances the viability of the EV market, and propels the entire industry forward.
