Gartner Research: EVs will become cheaper to produce than ICE vehicles in 3 years

 

For many years, electric vehicle critics have been pessimistic that EVs will ever become mainstream as they argue that they will always be more expensive than fossil fuel-powered vehicles. Market experts have repeatedly pointed out that if EVs ever hope to displace them from our roads they need to achieve cost parity with ICE vehicles. Fortunately for EV lovers, there is growing evidence that this could happen sooner than many expect. The tough competition, especially from China, as well as the oversupplied market has become a nightmare for companies like Tesla Inc. (NASDAQ:TSLA), the world’s most valuable automaker, is embroiled in a never-ending price war. Tesla has seen its profit margins decline in recent years after repeatedly cutting the prices of its models, with a sharp decline in the price of battery materials unable to fully offset lower sticker prices.

Obviously this is bad news for EV investors, but good news for buyers of electric vehicles. In fact, Tesla’s most affordable model is now cheaper than its ICE counterpart,”The Model 3’s starting price is now $6,500 less than the cheapest BMW 3 Series, often seen as the Tesla sedan’s most direct gasoline-powered competitor.Bloomberg has noted. But now one market expert believes it will become an industry-wide trend within a few years. Gartner predicts that EVs will be cheaper to produce than similarly sized ICE vehicles in three short years. , thanks largely to improvements in manufacturing methods, with production costs falling faster than battery costs.

,The new OEM incumbents want to redefine the status quo in automotive in a big way. They brought new innovations that simplified production costs such as centralized vehicle architecture or the introduction of gigacasting that helped reduce manufacturing costs and assembly times, which legacy automakers had no option to adopt in order to survive. .Pedro Pacheco, vice president of research at Gartner, said.

Unfortunately, fierce competition in this sector will lead to the demise of many EV startups, as we have already seen Lordstown Motors And Proterra. Gartner predicts that by 2027, 15% of EV companies established over the past decade will either go bankrupt or be acquired. According to Pacheco, the EV sector “...Just entering a new phase where the companies with the best products and services will win over the rest.,

,Lordstown’s bankruptcy signals that the days of successful EV startups are behind them. Going forward, it will be Tesla and the traditional incumbents… who will drive it for market shareThomas Hess, president of hedge fund Great Hill Capital, told Reuters shortly after Lordstown filed for bankruptcy. The EV startup shut down after failing to resolve a dispute over investment promises from Taiwan. Foxconn.

Another downside to EVs getting cheaper: According to Gartner, the average cost of repairing an EV body and battery after a serious accident will increase 30% by 2027, meaning it’s better to write off the vehicle than repair it. Will be cheaper.

Tesla, EV shares fall

As you might expect, investing in the EV sector has become a high-risk venture amid declining sales and contracting margins. Tesla shares have fallen 29.2% so far this year after Morgan Stanley’s Adam Jonas cut his price target due to weak EV demand. Jonas warned that hybrids are competing for marginal EV buyers while fleets are dumping EV plans. He also raised the possibility that Tesla will record negative profit margins in its key auto segment in the current year.

,We expect Tesla’s 1H24 results to come in below expectations on profitability, with GAAP OP margins in the 2-3% range, meaning underlying EV manufacturing margins (ex downstream retail and ZEV credit) will likely be in the red. .“They updated.

Jonas believes Tesla’s FY24 automotive gross margin will fall to 11.4%, including a single-digit margin rate for Q2. They cut the company’s FY24 EPS estimate to $0.99 from $1.54 previously and the non-GAAP EPS estimate to $1.51 from $2.04 previously. However, he sticks to an overweight rating on the EV stock, “We believe Tesla has the key attributes to be valued as an AI beneficiary, but the company will first need to see stabilization in negative earnings revisions within the auto business. We don’t believe Tesla will get credit as an AI company unless core auto earnings are being revised. This process may take a few more quarters to complete, during which our $100 bear case may play out.,

Tesla’s EV peers haven’t fared any better: Rivian Automotive (NASDAQ:RIVN) is down 45.2% YTD; Fisker Inc. (NYSEFSR) has crashed 78.0% Lucid Group (NASDAQ:LCID) declined 26.4%.

However, long-term Tesla investors aren’t complaining considering the stock has returned a handsome 830% over the past five years.

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