Opinion | The stock market might disagree, but the world is fired up for electric vehicles – Waterloo Region Record

Forex Market Stock Traders

Last week, Elon Musk said he had a “super bad feeling” about the economy.

Don’t we all.

Inflation is at a 30-year high. Borrowing costs are rising. Supply chains are still disrupted. A war without apparent end is raging in Europe.

When a CEO who runs one of the world’s biggest enterprises says the economy is about to go sideways, you pay attention.

If an economic storm is brewing, Musk’s Tesla Inc. and the entire auto sector are more exposed to potential significant damage than most industries.

The auto-industry powerhouse of the southern Ontario manufacturing sector, and the industry worldwide, are spending record amounts of money reinventing themselves for the electric vehicle (EV) revolution.

They are doing so at a time of rising costs for scarce raw materials, higher interest payments on corporate debt, and inflation’s negative impact on consumer sentiment.

Consumer spending habits are a special worry for automakers. A car is not only most people’s second-biggest purchase, after a home — it is a discretionary expense that can be postponed.

And so, a stock market that increasingly shares Musk’s worries about a looming recession has been dumping auto stocks.

Shares in Tesla, General Motors Co. and Ford Motor Co. have each dropped in value by more than 40 per cent from their peak prices.

Which begs the question, are the automakers spending too much too soon on the EV revolution?

Will the Detroit Three automakers renege on their commitment to rebuilding the Ontario auto sector around EVs? And will there be industry-wide layoffs, as Musk signalled with his tweet that Tesla will have to reduce its workforce by 10 per cent?

The answer is no.

The EV industry is forecast by analytics firm BloombergNEF to account for about $67 trillion in economic activity between now and 2050 — one of the biggest business opportunities in history.

That staggering number is a rough estimate of the expense in replacing hundreds of millions of traditional internal-combustion vehicles over the next 30 years.

Worldwide, according to the EV Mobility Consumer Index, about 52 per cent of prospective car buyers want to purchase an EV — the first time that measure has ticked about 50 per cent.

The automakers’ greatest fear is to be late and lame with the EV models that the mass market will soon be demanding.

Mary Barra, CEO of GM, acknowledges that EV adoption rates would be higher if motorists had a greater variety of EVs to choose from.

She is right, of course. That’s why GM and its peers aim to have half their product lineups consisting of EVs in the next three to four years.

Barra is also in a hurry to get EV models priced below $30,000 into GM’s showrooms, to underprice rivals and for the day when government EV-purchase rebates fade out.

Yet despite today’s limited variety of EV models, and a less fully developed EV charging network in North America than in parts of China and Europe, the EV adoption rate in Canada is already above the world average.

It hit 5.6 per cent of new-vehicle registrations last year for light vehicles, about double the rate three years ago.

B.C. had the highest rate, at 13 per cent, followed by Quebec, at 9.5 per cent. Ontario, the biggest Canadian market without provincial rebates on EV purchases, trailed at 3.3 per cent.

The stock market might disagree, but auto industry strategists are counting on pent-up demand to carry them through a possible recession in 2023 or 2024 to a prosperous second half of the decade.

That’s understandable. Pent-up vehicle demand developed not only during the pandemic. Vehicle sales were down in each of the three pre-pandemic years as well.

“We strongly believe there is massive demand still to be met,” Morningstar Inc., the leading investor services firm, said in a recent report on the auto sector.

The existing world fleet of vehicles is old and overdue for replacement.

“And electric vehicles bring an exciting change to consumers as well as superior driving performance versus combustion vehicles,” Morningstar said.

In total, GM, Ford, Volkswagen and Stellantis NV (Fiat, Chrysler, Peugeot, Citroën) alone will spend more than $250 billion in the next few years on developing new EV models, retrofitting assembly plants to make EVs, and building new battery plants. Ontario is in line for close to half a dozen of those EV facilities.

Musk’s warning about a bit of economic turbulence ahead is on the mark.

But Musk followed up his first alarming tweet last week with another that backtracked on his 10 per cent layoff comment.

It turns out that for Tesla to meet its own ambitious goals — including a more than 50 per cent jump in production this year over 2021, or about 1.5 million vehicles — Musk is expected to increase the size of his workforce.

In other words, the great auto race is still on.

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