Show Transcript
EV sales started to pick up in 2009 and have been increasing ever since. Anthony Okolie talks with David Mau, Portfolio Manager, TD Asset Management, about the long-term implications of the coronavirus on the electric vehicle industry and the turbo-charged rise in Tesla stock.
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- Electric cars have experienced a decade of rapid growth, but due to the outbreak of COVID-19, car sales overall have slumped so far this year. Despite that, David, you're still optimistic about the sector for electric vehicles. Can you help us explain why?
- Yeah, Tony. Listen, global auto sales are down this year. They're actually down about 30% year to date for the first six months of the year. So, naturally, sales of electric vehicles are also going to be down.
But the good news is the penetration rates of electric vehicles is still going up. So what that means is that, as a percentage of all new cars sold, the percentage of electric vehicles being sold is actually higher this year than it was before.
And you've got to remember, electric vehicles, this is a long-term theme, and that's going to take place over kind of the next 20 to 30 years. So a one- or two-year kind of bump in the road doesn't really throw the overall outlook off by too much. So we're still positive on this EV theme.
- So given the high penetration rate, what do you expect from the global EV markets in the next few months and the years beyond?
- Yeah, so it's always going to be hard to pinpoint exactly what's going to happen in the next few months, especially with the uncertain situation that we're in right now. But we do expect EVs to continue to grow. And over the long term, electric vehicles will eventually displace gasoline engines. And we think maybe sometime in the next 15 to 20 years, electric-vehicle sales are going to make up half or more of all new-vehicle sales.
Now, that doesn't mean that 50% of the cars are going to be EVs in 20 years. What that means is that 50% of new sales will be electric vehicles, but there is going to be an existing fleet of gasoline engines. So as a percentage of all vehicles on the road, EVs are still going to be a small percentage. But eventually, over time, we expect EVs to be the dominant vehicle on the road.
And so given that, you still believe that EV production and sales are expected to rise. Again, why is that?
- Well, one big thing is that battery technology keeps getting better. Companies are spending a lot of money on doing the research, and they're able now to produce batteries more cheaply, more efficiently, and these batteries are better batteries. They're going to provide more range, and they're going to shorten charging times, and all of these things are going to appeal to the consumers.
And as these companies scale up on production, they're going to be able to make EVs and batteries themselves more cheaply. So they'll be able to pass on the savings to the consumers, and customers are going to really be able to see the value of having an EV.
The other thing is charging infrastructure is also improving. So it's really important for a customer-- an electric-vehicle buyer to feel safe and assured that there's lots of charging availability. So as charging infrastructure improves, they're going to be more likely to be able to buy EVs.
And then lastly, governments around the world are very supportive of electric vehicles. Governments, as you know, are focused on decarbonization and emissions regulations. So they're providing financial and regulatory incentives to car companies, and as well they're providing financial incentives to buyers in the form of rebates or lower registration costs or lower parking costs. And there's also nonfinancial incentives, things like governments will allow electric vehicles to drive in HOV lanes whereas a regular gasoline car, if you only had one passenger, you'd not be able to drive in an HOV lane.
- Now, Tesla has been in the news recently. Its stock has skyrocketed this year. What's driving this Tesla trading frenzy?
- Yeah, so Tesla is up over 300% since the March low. And there are a lot of reasons behind this. One of the things that the market realizes is that the financial performance of Tesla has really improved over the last few quarters. And, in fact, 2020 may be the first year in Tesla's history where the company is actually profitable.
Another thing is Tesla started producing Model 3s in China this year, and Tesla is by far the EV leader in China, and the Model 3 is actually the best-selling electric vehicle in China. And China happens to be not just the largest car market but also the largest market for electric vehicles.
Another reason could be due to, as I mentioned, Tesla's strong financial performance this year, it looks like Tesla may be added to the S&P 500 index, maybe even as early as the end of this month. So there may be some institutional investors out there who are buying the stock ahead of its inclusion in the index.
And then lastly, there is speculation that-- there's some retail investors and day traders, especially in the US, who have really latched on to Tesla as a stock that they want to own, not just because their cars are good but because Tesla as a company does represent some of the things that they find important right now. And that's mainly the environment and other social issues.
And then I think probably the last thing is the company has announced that they will make some announcements in September around new battery technology. So if they really do have a breakthrough in battery technology, it could really give them a much wider competitive advantage in the EV market than they already do right now.
So there's lots of reasons to own Tesla. Some of the pushback that we hear all the time is, well, the valuation doesn't make sense. And that's really for the market to decide, but for Tesla, the stock is trading on a P/E of 120-times-ish next year's earnings, whereas most other automakers are trading somewhere between 5 and 10 times. So it is a little bit-- there is quite a premium for the Tesla stock, and only time will tell whether or not this premium is justified.
- OK, David, so we have a few seconds left, but if I'm an investor who's interested in the EV market, how do I play the sector?
- Yeah, there's a number of ways. You could buy the car companies directly. You could invest in the battery makers, or you could buy-- or invest in some of the underlying commodities that go into the batteries.
One of the things that we've been looking at recently is companies who are involved in the charging infrastructure-- so electricity, transmission, and distribution as well as the actual manufacturing and installation of charging systems.
- David, thank you very much for your time.
- You're welcome.
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- Yeah, Tony. Listen, global auto sales are down this year. They're actually down about 30% year to date for the first six months of the year. So, naturally, sales of electric vehicles are also going to be down.
But the good news is the penetration rates of electric vehicles is still going up. So what that means is that, as a percentage of all new cars sold, the percentage of electric vehicles being sold is actually higher this year than it was before.
And you've got to remember, electric vehicles, this is a long-term theme, and that's going to take place over kind of the next 20 to 30 years. So a one- or two-year kind of bump in the road doesn't really throw the overall outlook off by too much. So we're still positive on this EV theme.
- So given the high penetration rate, what do you expect from the global EV markets in the next few months and the years beyond?
- Yeah, so it's always going to be hard to pinpoint exactly what's going to happen in the next few months, especially with the uncertain situation that we're in right now. But we do expect EVs to continue to grow. And over the long term, electric vehicles will eventually displace gasoline engines. And we think maybe sometime in the next 15 to 20 years, electric-vehicle sales are going to make up half or more of all new-vehicle sales.
Now, that doesn't mean that 50% of the cars are going to be EVs in 20 years. What that means is that 50% of new sales will be electric vehicles, but there is going to be an existing fleet of gasoline engines. So as a percentage of all vehicles on the road, EVs are still going to be a small percentage. But eventually, over time, we expect EVs to be the dominant vehicle on the road.
And so given that, you still believe that EV production and sales are expected to rise. Again, why is that?
- Well, one big thing is that battery technology keeps getting better. Companies are spending a lot of money on doing the research, and they're able now to produce batteries more cheaply, more efficiently, and these batteries are better batteries. They're going to provide more range, and they're going to shorten charging times, and all of these things are going to appeal to the consumers.
And as these companies scale up on production, they're going to be able to make EVs and batteries themselves more cheaply. So they'll be able to pass on the savings to the consumers, and customers are going to really be able to see the value of having an EV.
The other thing is charging infrastructure is also improving. So it's really important for a customer-- an electric-vehicle buyer to feel safe and assured that there's lots of charging availability. So as charging infrastructure improves, they're going to be more likely to be able to buy EVs.
And then lastly, governments around the world are very supportive of electric vehicles. Governments, as you know, are focused on decarbonization and emissions regulations. So they're providing financial and regulatory incentives to car companies, and as well they're providing financial incentives to buyers in the form of rebates or lower registration costs or lower parking costs. And there's also nonfinancial incentives, things like governments will allow electric vehicles to drive in HOV lanes whereas a regular gasoline car, if you only had one passenger, you'd not be able to drive in an HOV lane.
- Now, Tesla has been in the news recently. Its stock has skyrocketed this year. What's driving this Tesla trading frenzy?
- Yeah, so Tesla is up over 300% since the March low. And there are a lot of reasons behind this. One of the things that the market realizes is that the financial performance of Tesla has really improved over the last few quarters. And, in fact, 2020 may be the first year in Tesla's history where the company is actually profitable.
Another thing is Tesla started producing Model 3s in China this year, and Tesla is by far the EV leader in China, and the Model 3 is actually the best-selling electric vehicle in China. And China happens to be not just the largest car market but also the largest market for electric vehicles.
Another reason could be due to, as I mentioned, Tesla's strong financial performance this year, it looks like Tesla may be added to the S&P 500 index, maybe even as early as the end of this month. So there may be some institutional investors out there who are buying the stock ahead of its inclusion in the index.
And then lastly, there is speculation that-- there's some retail investors and day traders, especially in the US, who have really latched on to Tesla as a stock that they want to own, not just because their cars are good but because Tesla as a company does represent some of the things that they find important right now. And that's mainly the environment and other social issues.
And then I think probably the last thing is the company has announced that they will make some announcements in September around new battery technology. So if they really do have a breakthrough in battery technology, it could really give them a much wider competitive advantage in the EV market than they already do right now.
So there's lots of reasons to own Tesla. Some of the pushback that we hear all the time is, well, the valuation doesn't make sense. And that's really for the market to decide, but for Tesla, the stock is trading on a P/E of 120-times-ish next year's earnings, whereas most other automakers are trading somewhere between 5 and 10 times. So it is a little bit-- there is quite a premium for the Tesla stock, and only time will tell whether or not this premium is justified.
- OK, David, so we have a few seconds left, but if I'm an investor who's interested in the EV market, how do I play the sector?
- Yeah, there's a number of ways. You could buy the car companies directly. You could invest in the battery makers, or you could buy-- or invest in some of the underlying commodities that go into the batteries.
One of the things that we've been looking at recently is companies who are involved in the charging infrastructure-- so electricity, transmission, and distribution as well as the actual manufacturing and installation of charging systems.
- David, thank you very much for your time.
- You're welcome.
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