EV startups will have to 'race to catch Tesla' in maturing EV market: Expert

Callaway Climate Insights Founder and Editor-in-Chief David Callaway joins Yahoo Finance Live to discuss underwhelming Q1 sales of electric vehicles worldwide, EV startups, supply chain issues, and the outlook for EV market growth.

Video transcript

RACHELLE AKUFFO: Tesla's price flux continues. The EV maker raising prices of its models S, X, and Y vehicles. The increase a welcome sign for investors worried about Tesla's slimming margins thanks to its aggressive price But the year ahead is bright for electric vehicles. The International Energy Agency expects 14 million EVs to be sold this year. That's up 35%.

But even as demand surges, EV startups struggle to scale up and compete with delivery volume from industry leaders, Tesla and BYD. David Callaway, Callaway Climate Insights founder and editor in chief, joins me now for a closer look at the future of EVs. Good to have you on the show, David.

DAVID CALLAWAY: Hello--

RACHELLE AKUFFO: So I feel it's important to start with what we've-- good to see you. I first want to start with some of the earnings that we've seen from Rivian, Lucid and Fisker. What is that telling us about really and these companies in particular and really where they are in terms of competition with a Tesla or a BYD?

DAVID CALLAWAY: Yeah, this was earnings week for the EV companies, Rachelle. And we really began to see what's been starting to happen for some months now, which is the beginnings of a maturing of the electric vehicle industry. We've had four years of talking about electric cars. And Tesla has dominated the market in that time frame.

All the other models were startups. And they had good stories. And they raised money. And they told good stories to investors. Some of them went public. Some of them went SPAC. And there was a lot of fanfare. And now they're kind of reaching the point where the entire auto industry has been sold on EVs. The big guys, like Ford, GM, even Toyota, are met-- ramping up massively. And so the startup companies are having a hard time.

First of all, it's hard to find the money to build and scale production like you need to. Rivian, for instance, is hoping it had one of the better earnings this week. Stock is still down. It's hoping to make 50,000 cars a year going forward. Well, Toyota made 118,000 electric cars last quarter. And Tesla made 437,000 cars. So it's a big difference. And Rivian is struggling to make that.

Lucid is they're making about 2,000 cars a month. Fisker is making slightly more of its trucks, but not that much. Another company, Lordstown Motors, is barely alive and running out of cash it seems. So what we're starting to see is as the industry matures, like any industry, you go from kind of the startup [INAUDIBLE] and all the hype and excitement about what could be to the bigger companies coming in and saying right, we're going to do this. And we're going to scale it.

So I predict that some of these companies will fail. Others will be taken over by bigger companies. For instance, Lucid is 60% owned by the Saudis. They could step in at any time. Amazon and Ford have big Rivian stakes. So anything could happen there going forward. But as the EV industry develops, it's really going to be a race for the big boys to catch Tesla. And that's going to be interesting because we're going to start to see big boys from China coming in as well.

RACHELLE AKUFFO: So then keeping that in mind, then this shake up that we're seeing in the EV space, as you mentioned, some won't make it. Some perhaps could be acquired then and when you look at the number of EVs that are being sold. But then you look at the stock prices, especially for some of these companies that also have input costs that go into some of these EVs, seeing something of a divergence here. Why do you think that is?

DAVID CALLAWAY: Well, a car is an expensive thing to make. An electric car is turning out to be even more expensive. It seems simple. It's just all battery, right? But the batteries are very expensive. You have to source minerals to get to the batteries. The batteries are heavier, which means that once we have fleets of electric cars on the road-- and I think you said 14 million cars this year. The IEA is also predicting America will have 25% electric cars by end of the decade. China will be 80% electric. Europe, 60% electric.

Once we have these massive fleets, they're going to be heavier. We're going to need new tires on all the cars, new roads, new bridges. Any-- but it's an expensive endeavor. And for a startup company, even one that's raised several $100 million, like Rivian or Lucid, that goes fast when you're trying to scale production and make 10,000 cars a month.

So I think that's really what's behind the kind of shakeout that we're seeing. And in the meantime, Toyota, Ford, GM are ramping up big time. I mean, Ford said it expects to lose $3 billion on its EVs before it can get the profitability in a few years. It has $3 billion. The others don't.

RACHELLE AKUFFO: And you have a lot of sort of homemade brands in China. Europe leading the way as well. But then you look at BYD. We know that Warren Buffett was hot on it for a second. We know he likes a strong economic moat. He likes a company that has a competitive edge. What's your take on what he's doing now with sort of selling and sort of moving away from BYD?

DAVID CALLAWAY: Yeah, it's really fascinating, Rochelle. I mean, we were talking about the startups, right? But BYD is the biggest EV company in the world bigger than Tesla. And its stock has been up six-fold over the last 10 years or so. Warren Buffett got in very early. He got in right after the last financial crisis a dozen years ago. And he's been riding a huge profit on it.

So the fact that he's starting to sell, he's sold about half his stake in the last six months. This came out of his Omaha meetings last weekend, which you guys attended. So the fact that he's starting to sell says something. It may say more about his concerns about China going forward. But it also may say something about the maturation of the EV industry, right? And BYD is the largest by far in China.

It wants to expand into the US. Will it be allowed to by the government? We don't know. Is it going to expand into Europe? It is, but it's good, slow going there. So maybe Buffett's realized he's gotten the sweet part of the EV story. And it's time to move on to something else, AI or something like that.

RACHELLE AKUFFO: Certainly. It certainly seems an interesting proposition. But as you mentioned, some of the geopolitical issues also to consider as well. A big thank you to David Callaway, Callaway Climate Insights founder and editor in chief. Have a great weekend.

DAVID CALLAWAY: Thank you, Rachelle.