With Detroit’s Big Three automakers and Elon Musk’s Tesla making ventilators to support the coronavirus pandemic relief effort, no doubt the shift to electronic and autonomous cars has suffered a major setback.
For one, electric and hybrid cars aren’t being made right now as plants are shut down to support social distancing. Who knows when auto production restarts. Moreover, it’s unclear what demand will be like for these often more expensive cars when consumers try to catch up on bills later this year after being laid off this spring.
Meanwhile, automakers have temporarily halted investments in the technology designed to power the cars of the future (not to mention a good chunk of their advertising for them).
And last but not least, the plunge in oil prices — which has sent gas prices to below $1.00 a gallon in some parts of the country — makes it more attractive for people to own a car with a good old fashioned gas engine.
Take all these factors together, and you see a vastly different road ahead for electric and autonomous cars looking out the next several years.
“There has been a setback,” TPG Global senior advisor and former Ford CEO Mark Fields said on Yahoo Finance’s The First Trade. Fields is credited with putting Ford on track to play aggressively in the electric and autonomous car future as CEO from 2014-2017.
Add Fields, “This is going to be another casualty, if you will of COVID-19, in which an environment where you have consumer purchasing power severely impacted. And the fact that electronic cars are still viewed as luxury items because they are more expensive than internal combustion engines.”
Fields is also cautious on how the major automakers will reallocate funds during the eventual recovery to autonomous car technology.
“It doesn’t make sense for an automaker to be spending at the same pace on the autonomous future when your number one priority is surviving the non-autonomous present. So those investments will be slowing down,” Fields added.
Outdated forecasts for electric cars
The next shoe to drop, at least from an investor standpoint, is Wall Street marking down, big-time, their long-term growth forecasts for electric cars in light of the coronavirus pandemic. Analysts could also make adjustments to profits for the Big Three automakers to account for write-offs on electric and autonomous car investments.
Remember, it’s these rosy sales forecasts that have primarily underpinned the rallies in electric car stocks such as Tesla. Take the projections of JPMorgan as a prime example.
By 2025, JPMorgan estimates that hybrid electric autos will account for 30% of all vehicle sales. Plug in electronic cars are expected to have a 7.7% market share of the auto industry by then, JPMorgan estimates.
This long-range research was released in late 2018. And it seems wildly outdated in the wake of the coronavirus and in a world of $20 a barrel oil. Be prepared for another valuation reset, electric-car bulls.