Al Root
Battery-powered cars had a banner year in 2024, although investors might not realize that from the headlines pointing out slowing growth and outright declines at Tesla.
Still, raw sales data tells investors something about the future of the auto industry -- and the biggest risk to many car stocks.
Americans bought about 16 million new cars in 2024. A solid year, but still below the 17 million sold in 2019, before the pandemic. Back then, cars with batteries accounted 4% of all cars sold. In 2024 the number was closer to 20%.
Cars with batteries cover three categories: Battery electric vehicles, or BEVs, plug-in hybrids, or PHEVs, and mild hybrids, or MHEVs.
One in five cars Americans bought this past year had an electric motor. That is quite a feat, but the mix isn't what investors might have expected a few years ago. Almost half of the 2024 electrified sales were mild hybrids. Americans love a traditional Prius.
BEV sales still grew about 7% year over year. (Tesla's U.S. sales fell about 6% year over year.) And penetration of new car sales increased to about 8% of all cars sold from 7% in 2023.
In Europe, about one-third of 2024 car sales were a mild hybrid. BEVs accounted for about 15% of European car sales.
In China, BEVs accounted for about 27% of 2024 new car sales. BEVs actually outsell PHEVs in China. That isn't true in the U.S. or Europe.
Many Chinese industry data providers don't report on MHEVs. Sales mix might be the reason for that. BEVs and PHEVs accounted for almost half of all new car sales in 2024 and that percentage is expected to be about 60% in 2025, according to Citi analyst Jeff Chung.
What drives the regional differences? Politics, driving habits, culture, personal incomes, cost, charging infrastructure, government policies, and government subsidies all play a role.
For investors, a couple of things should be clear from the data. More electrified vehicles will be sold in the coming years. Politics and policies aside, batteries are getting cheaper and no one likes spending money on gasoline. In most instances, the electricity to charge an EV is roughly one-quarter to one-half the cost of an equivalent amount of gasoline.
That also means investment in multiple powertrains will continue for the likes of Ford Motor, General Motors, Stellantis, Toyota Motor, and other traditional auto makers. Demand will grow, justifying some investment. The traditional auto makers also can risk losing their business to EV upstarts like Tesla and China's BYD.
Developing gas engines, battery systems, and electric motors doesn't come cheap, though. What is more, auto makers prefer to sell hundreds of thousands of a single vehicle model with assembly plants full all the time. They don't like selling tens of thousands of many models produced at different plants.
Higher spending will likely keep a lid on asset returns and valuation multiples. In 2021, investors hoped the EV revolution would mean higher growth or higher valuation multiples for auto makers jumping on EV tech. It hasn't happened. In 2019, GM stock traded for about 5.4 times estimated 2020 earnings -- before the pandemic hit numbers. Now it trades for about 4.8 times estimated 2025 earnings.
That doesn't mean there aren't opportunities. Through midday trading Thursday, GM stock was up about 45% over the past 12 months. The S&P 500 was up about 25%. GM sold more cars, and more BEVs, in the U.S. in 2024 than it did in 2023. It also bought back a lot of stock out of free cash flow generated by keeping costs in check.
Write to Al Root at allen.root@dowjones.com
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January 16, 2025 13:13 ET (18:13 GMT)
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