For the better part of the last 6 months we have been documenting the slowdown in EV adoption, with major legacy automakers scaling back on investments, switching to hybrid plugin models and saturating the market with competition.
And a new note from RBC this week seems to suggest that the slowdown isn't close to being over.
Analyst Tom Narayan wrote on Tuesday morning in a note to clients: "Key takeaways thus far from earnings season are that the EV slowdown is not showing any evidence of an inflection, Level 4 autonomy headwinds continue to persist, and fears over supplier inventory overbuild are likely overblown."
He also suggested that he would "prefer owning Stellantis into Thursday's print, Ferrari on conservative 2024 guidance and demand strength and Mobileye/Tesla on successes with SuperVision and FSD."
Citing his reasoning for the EV slowdown not bottoming out, Narayan wrote that "Ford’s EV losses worsened sequentially again in Q4/23 (-$1.57B in Q4 vs -$1.329B in Q3). EV loss guidance for 2024 came in worse than consensus expectations (~-$5B+ vs ~-$4B)."
He also cited Tesla's "vague delivery guidance for 2024" pointing out their ‘’notably lower’’ growth in 2024 vs 2023 guide, which he says is "due in part to uncertainty on macro conditions – affordability, interest rates etc."
He notes that consensus for Tesla is "calling for 14% growth in 2024 vs 2023, which would be a notable downshift from 2023’s 40% growth level, but investors are worried about price cutting to achieve consensus level volumes."
Narayan also cited pressure deeper on the supply chain noting that "Magna delayed breakeven guidance for megatrend investments to 2026 from 2025 largely due to the EV slowdown."
He notes Stellantis has been de-risked and looks a better option heading into earnings: "Stellantis reports this Thursday. H2/23 consensus numbers have come in and now we think numbers are largely derisked. We could also see something more concrete in terms of 2024 EBIT guidance – we might not get EBIT but we could get margins. After GM and Ford’s above consensus levels, STLA could be strong as well."
The note also points out that General Motors revealed its 2024 financial outlook, which anticipates a $1 billion decrease in funding for its Cruise autonomous vehicle division. At the same time, Magna has announced its intention to concentrate on assisted driving technologies, indicating no current interest in acquiring companies specializing in lidar technology for Level 4 autonomous vehicles.
Narayan's reasoning also lies in the fact that Level 4 autonomy is not being developed as aggressively as it once was.
The emerging trend suggests an industry shift towards enhancing Level 2+ autonomous driving technologies rather than developing full self-driving capabilities in-house, Narayan says. This approach aligns with the strategies of companies like Mobileye and Tesla, which continue to develop and promote their respective SuperVision and Full Self-Driving (FSD) systems.
