The traditional auto industry is frantically trying to get ahead the curve when it comes to electric cars. Numerous automakers are either bringing new electric vehicles to market — or announcing bold plans to do so over the next decade.
But do they have a shot at success? Morgan Stanely lead auto analyst isn’t so sure.
He explained why in a research note published Tuesday, in which he cut his rating and price target for Delphi, a major auto-parts supplier.
The target-price drop is notable: $59 from $74. I won’t get into Jonas’ take on why Delphi is vulnerable — a lot of analysts like the supplier part of the autos sector better than the manufacturer or “OEM” side. They figure that suppliers, due their diversification, will make out better in weak markets than individual OEMs, which are highly reliant on consumer trends, such as the current rage for pickups and SUV in the US.
Jonas isn’t sure that thinking will hold up.
What’s more interesting in Jonas’ note is this:
[Electric vehicles] are not just a trend, but a new strategy. A major move away from internal combustion technology is not something we believe OEMs and its supply base can easily cope with. Eroding ICE content can lead to lower growth and margin pressure. A significant number of new business wins in the areas of electrification may be possible, but require higher-for-longer engineering and launch costs that we do not believe are in consensus expectations yet. We take a more conservative stance on such costs given the unprecedented nature of many of these programs and the risk factors that could impact OEMs that are outside of [Delphi’s] control.
Traditional OEM’s are abundantly aware of what Jonas’ is talking about. With EV’s currently only taking up about 1% of the global market, they represent no threat to gas-powered technology.
But if the EV market share expands, and expands significantly, a century’s worth of intellectual property could rapidly be as useless as a stagecoach for cross-country travel.
Jonas could be too sweepingly bullish on EVs. So far, consumers have shown little interest in the cars, and they have had almost a decade to develop desire for them. They have had Teslas to buy, so there’s no arguing that EVs have been held back because they aren’t fast, luxurious, or sexy.
The bottom line is that EVs are seen as too expensive and too much of a hassle to charge. There also aren’t really any big electric SUVs, and many Americans want that type of vehicle at the moment.
However, Jonas has put his finger on something of an Armageddon thesis for the traditional industry. Hundreds of billions in global market capitalisation has been created over the decades, almost all of it powered by gasoline.
Shares of Delphi were trading down about 4% on Tuesday, to $64.