Show Transcript
It’s been a challenging year for the electric vehicle market, with some auto makers easing investment amid slowing demand. But is this a speed bump or longer-term trend? David Mau, VP & Director, Portfolio Research, TD Asset Management joins MoneyTalk Live’s Greg Bonnell to discuss.
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Been a challenging year for the electric vehicle market. Some major automakers have been pulling back on their investment in the space due to slowing demand. So the question becomes, is this just a speed bump or a longer-term trend? David Mau, VP and Director for Portfolio Research at TD Asset Management, joins us now. David, great to have you back on the program.
Hi, Greg. Always nice to be here.
The EV space-- so fascinating over about the past roughly 11, 12 months where this idea, as we were saying, everyone said EVs are the future, and that was the given narrative. And then something changed. Walk us through where we are.
Yeah. I mean, look-- for the overall market, EV demand has certainly come down a little bit. We're seeing a slowing. Like you said, it started probably midway through-- halfway through last year, and it's continued into this year. And we're talking about the US and Canada.
It doesn't mean that sales growth is actually negative. It's just that the pace of sales growth has slowed significantly. And a lot of people think that this is-- or maybe people are hoping that this is just a temporary blip, and we'll recover back to a positive long-term trend. As to exactly what's going on in the industry, it just seems that the market is a bit saturated now, and demand from people who are not first adopters has definitely slowed.
As far as the big players go, obviously, Tesla is always up there when we mention big players. Tesla is actually experiencing declining sales this year, something that they haven't really seen before. Now, another big competitor out there is BYD, which is a Chinese company.
I would say they're probably Tesla's closest competitor. They mostly sell their cars in China and other parts of Asia. But BYD actually haven't seen a decline in sales. But again, that's going to be a function of their geography, where their biggest market is. Because in Asia and particularly China, demand hasn't slowed as much as it has here in North America.
As the other thing is BYD actually sells hybrid vehicles as well, which Tesla doesn't. So that's been supportive for BYD. As we know, demand for hybrids have been very strong over the last couple of years.
Right. I think it was some of the automakers-- you just mentioned Tesla, as we know, all in on the electric. You saw Ford, GM, the other big automakers, the established players saying, well, we're not going to let Tesla have all the fun in this market. And they came out with their own EVs.
But I look back over the last year and announcements saying, we haven't abandoned the electric vehicle strategy, but we're pulling back a little bit, and we're going to focus on a mix, whether it's hybrids or whether there's still demand for the internal combustion engine. Sort of interesting what's happening when the North American player is not necessarily stopping everything, but just saying maybe we need a different mix to meet the consumer demand.
Yeah, that's definitely true. I think all of the OEMs that you just mentioned, they're seeing the market change right before them, and what they're trying to do is maintain the most flexibility that they can-- flexibility meaning in terms of production. So like you said, if EVs slow even more from here, they'll probably cut back more on EVs and increase their hybrid production or, instead of cutting back on internal combustion engines as much as they had planned, they might slow that and continue to produce these gasoline cars.
Now, these are the big automakers, obviously. But we know here at home in Southern Ontario, particularly Southwestern Ontario, but throughout a large part of the States, too, there's a lot of suppliers to the big names. There's so many of them, we don't even know the names, but surely they must be starting to feel this in terms of what these big companies want from them.
Yeah, no, that's absolutely true. There's definitely some disruption going on throughout the EV supply chain. You mentioned here-- an example here in Ontario is there is a European battery materials company called Umicore. They were in the middle of building an EV battery plant out by Kingston, so really not too far from here.
They've seen the change in the market, and they've recently decided that, you know what, we're going to pause on building out this plant because the market's-- the industry is just simply not growing as fast as they thought it would. And keep in mind, this plant was going to cost almost $3 billion, and once it was up and running, it was going to provide about 600 jobs in the Kingston area, so that's pretty impactful.
Another Canadian example is Magna. Magna is a Canadian auto parts supplier. They also assemble cars for OEMs. They had a partnership with an EV startup, Fisker Automotive, which is a US EV company. And Fisker recently announced-- I think it was in June. They filed for bankruptcy. So this is going to have an impact on Magna, Magna's future sales and their profits. And not only that, with Fisker going into bankruptcy and that partnership, or that relationship, ending, Magna is going to cut about 500 jobs in Austria.
So these are just two examples here that are close to home, but there's numerous other examples out there of companies either cutting back existing production capacity or delaying spending plans. So it's starting to have a very real impact on the economy in terms of jobs and capital spending.
I want to get back to the China story, too, on electric vehicles. You said BYD and the success of that name and some others, it's mostly been selling to the Chinese market, other Asian markets. Seems to be concerns over the last several months, too, among some of the major automakers on these shores that those cars might start coming over here.
Yeah. Yeah, and that's a very real concern, and the way that the governments in Europe and in North America have responded is by announcing their intentions to slap tariffs on imported Chinese electric vehicles. The Biden administration recently said that they will impose a 100% tariff on any Chinese EV coming into America. The European Union is also putting tariffs on Chinese EVs. Their tariff rate is a bit lower. I think it's going to be around 38%, but still meaningful. And Canada will probably follow what the US is doing and impose a 100% tariff on any Chinese electric vehicle coming into the country.
And the reason that these Western governments are looking at these tariffs, or intending to put these tariffs on, is they've felt that the Chinese EV industry has been unfairly subsidized by the Chinese government, giving these Chinese companies kind of an unfair playing field over the domestic companies we have here and in Europe.
So their solution to that is to basically double the price of any car that's coming in, with the intention that this will make the appeal of Chinese EVs less appealing to consumers, given that, once this 100% tariff is in place, the selling price of these Chinese EVs are going to be actually quite comparable to the lower-end EVs that we have right now in North America and in Europe.
That's incredible. You double the price of a Chinese EV coming in, and that just gets it to where this market figures where the price of an EV should be. It tells you, I guess, the price points of what might be coming to this market.
Yeah. And you know, to be honest, the electric vehicles that are coming out of China now are quite good. That wasn't the case maybe five years ago, but China has made-- the Chinese automakers have made huge improvements over the last few years in terms of quality and build and the driver experience. So what they offer is quite competitive.
Going forward, it seems-- we put all of that together. I mean, there's the competitive threat from the Chinese EV market, what's going to happen on the tariff front, the slowing demand here. If an investor is looking at the EV space and trying to form a thesis, I don't see a clear path right now to trying to figure out where we're going to be in a year or five years, or maybe even 10 years.
Yeah, it is definitely a bit murky here. But what I would say is that I don't think this EV is-- I don't think EVs are simply a trend. It is a secular change that is happening in the industry. So it's always going to be hard to predict anything for one year or two years. But with a long-term view, I think the outlook is still pretty positive.
There's going to be bumps along the road. People will go out of business, or things will happen. But ultimately, I do think that we get to a point-- and it might not be as soon as what people think. It might not be the 10- to 15-year targets that are out there right now. Maybe it takes 20, 25 years. But at some point in the future, the electric vehicles will become the dominant, I guess, form of cars or automobiles. [AUDIO LOGO]
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Been a challenging year for the electric vehicle market. Some major automakers have been pulling back on their investment in the space due to slowing demand. So the question becomes, is this just a speed bump or a longer-term trend? David Mau, VP and Director for Portfolio Research at TD Asset Management, joins us now. David, great to have you back on the program.
Hi, Greg. Always nice to be here.
The EV space-- so fascinating over about the past roughly 11, 12 months where this idea, as we were saying, everyone said EVs are the future, and that was the given narrative. And then something changed. Walk us through where we are.
Yeah. I mean, look-- for the overall market, EV demand has certainly come down a little bit. We're seeing a slowing. Like you said, it started probably midway through-- halfway through last year, and it's continued into this year. And we're talking about the US and Canada.
It doesn't mean that sales growth is actually negative. It's just that the pace of sales growth has slowed significantly. And a lot of people think that this is-- or maybe people are hoping that this is just a temporary blip, and we'll recover back to a positive long-term trend. As to exactly what's going on in the industry, it just seems that the market is a bit saturated now, and demand from people who are not first adopters has definitely slowed.
As far as the big players go, obviously, Tesla is always up there when we mention big players. Tesla is actually experiencing declining sales this year, something that they haven't really seen before. Now, another big competitor out there is BYD, which is a Chinese company.
I would say they're probably Tesla's closest competitor. They mostly sell their cars in China and other parts of Asia. But BYD actually haven't seen a decline in sales. But again, that's going to be a function of their geography, where their biggest market is. Because in Asia and particularly China, demand hasn't slowed as much as it has here in North America.
As the other thing is BYD actually sells hybrid vehicles as well, which Tesla doesn't. So that's been supportive for BYD. As we know, demand for hybrids have been very strong over the last couple of years.
Right. I think it was some of the automakers-- you just mentioned Tesla, as we know, all in on the electric. You saw Ford, GM, the other big automakers, the established players saying, well, we're not going to let Tesla have all the fun in this market. And they came out with their own EVs.
But I look back over the last year and announcements saying, we haven't abandoned the electric vehicle strategy, but we're pulling back a little bit, and we're going to focus on a mix, whether it's hybrids or whether there's still demand for the internal combustion engine. Sort of interesting what's happening when the North American player is not necessarily stopping everything, but just saying maybe we need a different mix to meet the consumer demand.
Yeah, that's definitely true. I think all of the OEMs that you just mentioned, they're seeing the market change right before them, and what they're trying to do is maintain the most flexibility that they can-- flexibility meaning in terms of production. So like you said, if EVs slow even more from here, they'll probably cut back more on EVs and increase their hybrid production or, instead of cutting back on internal combustion engines as much as they had planned, they might slow that and continue to produce these gasoline cars.
Now, these are the big automakers, obviously. But we know here at home in Southern Ontario, particularly Southwestern Ontario, but throughout a large part of the States, too, there's a lot of suppliers to the big names. There's so many of them, we don't even know the names, but surely they must be starting to feel this in terms of what these big companies want from them.
Yeah, no, that's absolutely true. There's definitely some disruption going on throughout the EV supply chain. You mentioned here-- an example here in Ontario is there is a European battery materials company called Umicore. They were in the middle of building an EV battery plant out by Kingston, so really not too far from here.
They've seen the change in the market, and they've recently decided that, you know what, we're going to pause on building out this plant because the market's-- the industry is just simply not growing as fast as they thought it would. And keep in mind, this plant was going to cost almost $3 billion, and once it was up and running, it was going to provide about 600 jobs in the Kingston area, so that's pretty impactful.
Another Canadian example is Magna. Magna is a Canadian auto parts supplier. They also assemble cars for OEMs. They had a partnership with an EV startup, Fisker Automotive, which is a US EV company. And Fisker recently announced-- I think it was in June. They filed for bankruptcy. So this is going to have an impact on Magna, Magna's future sales and their profits. And not only that, with Fisker going into bankruptcy and that partnership, or that relationship, ending, Magna is going to cut about 500 jobs in Austria.
So these are just two examples here that are close to home, but there's numerous other examples out there of companies either cutting back existing production capacity or delaying spending plans. So it's starting to have a very real impact on the economy in terms of jobs and capital spending.
I want to get back to the China story, too, on electric vehicles. You said BYD and the success of that name and some others, it's mostly been selling to the Chinese market, other Asian markets. Seems to be concerns over the last several months, too, among some of the major automakers on these shores that those cars might start coming over here.
Yeah. Yeah, and that's a very real concern, and the way that the governments in Europe and in North America have responded is by announcing their intentions to slap tariffs on imported Chinese electric vehicles. The Biden administration recently said that they will impose a 100% tariff on any Chinese EV coming into America. The European Union is also putting tariffs on Chinese EVs. Their tariff rate is a bit lower. I think it's going to be around 38%, but still meaningful. And Canada will probably follow what the US is doing and impose a 100% tariff on any Chinese electric vehicle coming into the country.
And the reason that these Western governments are looking at these tariffs, or intending to put these tariffs on, is they've felt that the Chinese EV industry has been unfairly subsidized by the Chinese government, giving these Chinese companies kind of an unfair playing field over the domestic companies we have here and in Europe.
So their solution to that is to basically double the price of any car that's coming in, with the intention that this will make the appeal of Chinese EVs less appealing to consumers, given that, once this 100% tariff is in place, the selling price of these Chinese EVs are going to be actually quite comparable to the lower-end EVs that we have right now in North America and in Europe.
That's incredible. You double the price of a Chinese EV coming in, and that just gets it to where this market figures where the price of an EV should be. It tells you, I guess, the price points of what might be coming to this market.
Yeah. And you know, to be honest, the electric vehicles that are coming out of China now are quite good. That wasn't the case maybe five years ago, but China has made-- the Chinese automakers have made huge improvements over the last few years in terms of quality and build and the driver experience. So what they offer is quite competitive.
Going forward, it seems-- we put all of that together. I mean, there's the competitive threat from the Chinese EV market, what's going to happen on the tariff front, the slowing demand here. If an investor is looking at the EV space and trying to form a thesis, I don't see a clear path right now to trying to figure out where we're going to be in a year or five years, or maybe even 10 years.
Yeah, it is definitely a bit murky here. But what I would say is that I don't think this EV is-- I don't think EVs are simply a trend. It is a secular change that is happening in the industry. So it's always going to be hard to predict anything for one year or two years. But with a long-term view, I think the outlook is still pretty positive.
There's going to be bumps along the road. People will go out of business, or things will happen. But ultimately, I do think that we get to a point-- and it might not be as soon as what people think. It might not be the 10- to 15-year targets that are out there right now. Maybe it takes 20, 25 years. But at some point in the future, the electric vehicles will become the dominant, I guess, form of cars or automobiles. [AUDIO LOGO]
[MUSIC PLAYING]
