General Motors And Other Car Makers Have Big EV Goals. Why The Numbers Make No Sense.
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General Motors And Other Car Makers Have Big EV Goals. Why The Numbers Make No Sense.

By Al Root
Fri, Feb 5, 2021 5:40amGrey Clock 4 min

General Motors shook up the car industry this past week, saying it is aiming to stop selling gasoline-powered cars by 2035, much sooner than many on Wall Street would have predicted.

It is a sign that analysts and investors should be sharpening their pencils to figure out what is likely—and what is possible—for global electric-vehicle demand. The results of that number crunching will help to show whether the market has valued highflying EV stocks correctly and which, if any, still offer good value.

It isn’t an easy equation to solve. Auto makers express their goals—one indication of what might happen in the market—in different ways.

General Motors (ticker: GM) has its target for 2035. Tesla (TSLA) CEO Elon Musk has talked about selling 20 million EVs by 2030 and plans to increase its production volume at 50% a year for the foreseeable future.

Volkswagen (VOW. Germany) wants up to 25% of vehicle sales to come from battery-powered electric vehicles by 2030. And Toyota (TM) plans to sell 5.5 million electrified vehicles by 2030—a figure that includes hybrid electric cars as well as fuel-cell vehicles.

Barron’s added up the numbers in the publicly announced goals, aligning them by year and filling in some gaps. We calculate that, based on company comments, somewhere between 15 million and 20 million EVs will be sold a year by 2025. That implies an average annual growth rate of about 50% between last year and then. With that growth, EVs would account for roughly 15% to 20% of total light-vehicle sales.

Wedbush analyst Dan Ives qualifies as an electric-vehicle bull, but his estimate of EVs’ share of the market isn’t that high. “I am laser-focused on the skyrocketing EV demand out of China, Biden green initiatives, and [battery innovation] across the EV supply chain,” he tells Barron’s. “It looks like a golden age for EVs.”

Still, he is assuming EVs will win about 10% of the global market by 2025.

Focusing on China is a good idea. It’s the largest new-car market in the world and government incentives make buying an EV a “no brainer” for most consumers, according to Ives. Goldman Sachs analyst Fei Fang has predicted EVs will have 20% of the Chinese market by 2025.

RBC analyst Joseph Spak recently projected battery- and hybrid-electric vehicles could account for roughly 15% of new-car sales by 2025. That call was made back in December, before GM announced its aspiration to be all-electric by 2035.

Now Spak believes his projection could be too low. He did his own math to illustrate why.

“GM historically has had [about] 17% total U.S. market share,” he wrote in a recent research note. In December, he expected EVs to account for 40% of U.S. new-car sales by 2035. But for GM to go all-electric by then, assuming it keeps its historic 17% of the market, it would have to win 43% of U.S. EV sales, he said.

“The other way to interpret this [math] is that there could be upside to our 40% [battery electric] mix assumption,” added the analyst. That would be bullish for EV stocks, but he has a word of caution too. “A massive ramp in battery supply is needed to support this,” he said.

That gets at another important point for investors. There are many tertiary effects from faster EV penetration.

For one, as EVs take a bigger share of the market, they will start to get more of the capital the industry is willing to spend on product development. GM, for instance, is spending about half its capital over the next few years on EV and autonomous-driving technologies. By 2030, cars powered by internal combustion engines—ICE cars, in industry jargon—won’t look as attractive, relatively speaking, as those programs are drained of resources.

Electricity infrastructure is another critical issue. Right now oil and the refining industry essentially power cars. In the future, utilities and the electric grid will bear the burden.

The math needed to predict global electricity demand is harder, but higher EV penetration in 2025 would probably boost growth, now at roughly 3% a year, by a couple of percentage points. That seems manageable, but it means more investment in utilities.

The other side off the electricity equation is oil. Oil demand could fall slightly compared with 2019, a pre-pandemic year, if the world’s pool of EVs grows faster than expected. There are roughly 2 billion light vehicles on the road and nearly all take gasoline.

The next step in this math class is to value the EV sector. That isn’t easy either.

Given the growth and accelerating penetration, figures for 2025, when EV companies should be making real money, seem like a reasonable place to start. Apple (AAPL), the world’s most valuable company, trades for about 19 times estimated 2025 cash flow of about $120 billion.

Tesla is trading for about 65 times estimated 2025 cash flows. That is triple the figure for Apple, although if Musk’s goals are met, Tesla’s annual sales will go from more than 4 million vehicles to about 20 million over the next five years—between 2025 and 2030.

China’s NIO (NIO) is another highly valued EV stock. Analysts haven’t made public projections for its 2025 financials. But its shares trade for about 30 times estimated 2024 cash flow. According to analysts, NIO vehicle shipments are expected to go from roughly 345,000 to about 800,00 from 2025 to 2030. That is less growth than Tesla is looking to produce, but it still implies sales would more than double.

The 2025 valuation math can’t tell investors to buy or sell the stock, or the sector, but it does offer context about the coming golden age of EVs. Tesla stock is up about 21% year to date. NIO shares are up almost 19%. The S&P 500 is up about 2%.

Investors expect a lot. Morgan Stanley’s Adam Jonas pointed out that January EV sales in the U.S. were still less than 3% of the total, but he isn’t an EV bear. He rates Tesla stock at Buy and has a target of $880 for the stock-price target.

The ICE Age is ending. If the switch to EVs is rapid, valuations for manufacturers might not be unreasonable. The effects on other industries are just starting to be felt.



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The Knight Frank Luxury Investment Index reveals investments of passion are paying strong dividends, in some areas at least

By Bronwyn Allen
Tue, Apr 9, 2024 4 min

Art was the investment of passion that gained the most in value in 2023, according to Knight Frank’s Luxury Investment Index (KFLII). This is the second consecutive year that art has risen the most among the 10 popular investments tracked by the index, up 11 percent in 2023 and 29 percent in 2022. Art was followed by 8 percent growth in jewellery, 5 percent growth in watches, 4 percent growth in coins and 2 percent growth in coloured diamonds last year.

The weakest performers were rare whisky bottles, which lost nine percent of their value, classic cars down six percent and designer handbags down four percent. Luxury collectables are typically held by ultra-high-net-worth individuals (UHNWIs) who have a net worth of US$30 million or more. Knight Frank research shows 20 percent of UHNWI investment asset portfolios are allocated to collectables.

In 2023, the KFLII fell for only the second time, with prices down 1 percent on average.

Despite record-breaking individual sales in 2023, a surge in financial market returns contributed to a shift in allocations impacting on luxury asset value,” the report said. “… our assessment reveals a need for an ever more discerning approach from investors, with significant volatility by sub-market.

Sebastian Duthy of AMR said the 2023 art auction year began with notable sales including a record price for a Bronzino piece. But confidence waned as the year went on.

“It was telling that in May, Sotheby’s inserted one of its top Old Master lots – a Rubens’ portrait – into a 20th Century Modern evening sale. But by then, it was clear that the confidence among sellers, set by the previous year’s record-busting figures, was ebbing away. In the same month, modern and contemporary works from the collection of the late financier Gerald Fineberg sold well below pre-auction estimates.”

The value of ultra contemporary or red-chip’ art contracted the most in 2023.

“Works by a growing group of artists born after 1980 have been heavily promoted by mega galleries and auction houses in recent years. With freshly painted works in excess of £100,000 almost doubling in 2022, it was little surprise that this sector was one of the biggest casualties last year. There is a risk there are now simply too many fresh paint artists with none really standing out.”

In the jewellery market, Mr Duthy noted that demand was strongest for coloured gemstones of exceptional quality, iconic signed period jewels, single-owner collections, and items with historic provenance in 2023. In the watches market, Mr Duthy said collectors chased the most iconic and rare timepieces.

A Rolex John Player Special broke the model record when it sold for £2 million at Sotheby’s in May, double the price for a similar example sold at Phillips in 2021,” he said.

Although whisky was the worst-performing collectable in 2023, it has delivered the highest return on investment among the 10 items tracked by the index over the past decade, up 280 percent. Andy Simpson of Simpson Reserved, said 2023 was a challenging year but the best of the best bottles gained 20 percent in value. In my opinion some bottles that lost significant value in 2023 will return through the next two years as they are simply so scarce and, right now at least, so undervalued, Mr Simpson said.

Whisky was the worst performing collectable in 2023 but it had highest return on investment over a 10-year period. Image: Shutterstock

Classic car expert Dietrich Hatlapa said the 6 percent fall in collectable vehicle values in 2023 followed a 22 percent surge in 2022. The strong performance of other investment classes such as equities may have dampened collectors’ appetites it’s a very small market so it only takes a minor change in portfolio allocations to have an effect, and there has also probably been a degree of profit taking. However, we have seen some marques like BMW (up 9 percent in value) and Lamborghini (up 18 percent), which appeal to a younger breed of collector, buck the trend in 2023.”

Mr Duthy said a dip in the share price of the top luxury handbag brands last Autumn appeared to spook investors. Last autumn it was possible to pick up an Hermès white Niloticus Himalaya Birkin in good condition for under £50,000. The recent slide reflects a general correction at the upper end that’s been underway for some time rather than changing attitudes to the harvesting of exotic skins.

According to Knight Frank’s Attitudes Survey, the top five investments of passion among Australian UHNWIs are classic cars, art and wine. Fine wine values gained just 1 percent in 2023 as the market continued its correction, said Nick Martin of Wine Owners. “It’s been a hell of a long run, so I’m not that surprised. Some wines from very small producers that had enjoyed the most exuberant growth have seen the biggest drops. It had got a bit silly, £50 bottles had shot up to £200 or £300.”

Favourite investments of passion: Australia vs Global

1. Classic cars (61 percent of Australian UHNWIs vs 38 percent of global UHNWIs)
2. Art (58 percent vs 48 percent)
3. Wine (48 percent vs 35 percent)
4. Watches (42 percent vs 42 percent)
5. Jewellery (18 percent vs 28 percent)

Best returns among investments of passion (10 years)

1. Whisky 280 percent
2. Wine 146 percent
3. Watches 138 percent
4. Art 105 percent
5. Cars 82 percent

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