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Headlines
- Electric vehicle-focused funds have seen significant outflows this year, with $1.6 billion withdrawn by July 31.
- The potential reelection of Donald Trump, who opposes some EV policies, is adding to investor apprehension.
- The overall growth forecast for the EV market is cooling, leading to further market uncertainty.
Investors are rapidly pulling money out of electric vehicle (EV)-focused funds due to dampened growth forecasts and concerns over a potential reelection of Donald Trump, which could impact profitability. Data from EPFR Global shows that EV funds experienced net outflows of $1.6 billion up to July 31 this year, surpassing total redemptions in 2023, after seeing inflows in 2022.
The EV trade has become an anti-Trump trade, said Vicki Chi, a portfolio manager at Robeco in Hong Kong, who manages funds without direct exposure to pure-play EV producers. Despite the increasing presence of EVs on the road, many companies are not yet profitable and have limited prospects for expanding margins. Trump, despite having the support of Tesla Inc. CEO Elon Musk, has criticized incentives for EV adoption, suggesting they will remain a minor part of the market alongside gas-powered and hybrid vehicles. This uncertainty is also affecting automobile stocks as investors reassess their positions in the broader automotive sector.
Trump has pledged to revoke some current electric car policies and impose higher tariffs on Chinese EV imports, which could heighten concerns about the already slowing EV sales growth. Analysts from JPMorgan Chase & Co (NYSE:JPM), including Bill Peterson, noted that tax credits added under the Inflation Reduction Act might be repealed, and federal funding for EVs and related infrastructure could be eliminated.
Funds in China, the largest EV market, recorded almost $500 million in redemptions in the first half of the year, according to EPFR data, which tracks around $6.5 billion in assets. US, South Korean, and Japanese products also saw net outflows in the second quarter. Warren Buffett’s Berkshire Hathaway Inc. reduced its stake in Shenzhen-based BYD Co., a major competitor to Tesla, from over 20% to less than 5% in the last two years.
Musk mentioned that removing US subsidies would impact Tesla (NASDAQ:TSLA) to some extent but would be much more harmful to competitors. Companies like Volkswagen AG have reported weaker operating margins due to declining demand, and Ford Motor Co. and Mercedes-Benz Group AG have revised down their EV growth forecasts. Volkswagen’s Porsche AG has shifted away from its target for electric models to account for 80% of new-vehicle sales by 2030.
Chinese automakers like BYD face additional tariffs in the US and European Union, threatening their global expansion amid a fierce domestic price war that is reducing profitability. Raj Shant, a client portfolio manager at Jennison Associates, emphasized that growth in market share does not necessarily translate to profit growth, which is what ultimately drives share prices.
BloombergNEF’s Economic Transition Scenario projects EV sales, including plug-in hybrids, to increase from 13.9 million last year to over 30 million by 2027. However, the average annual sales growth for EVs is expected to slow to 21% through 2027, compared to 61% between 2020 and 2023.
