Head of Equity Strategy
Summary: In today's equity note, we zoom in on the battery electric vehicles industry as the news flow is heating up. NIO is increasingly under pressure and the Q3 earnings report will be a key event for Chinese EV-maker. Tesla continues to lose market share among the 15 carmakers we track. Finally, we comment on Renault's upcoming capital markets day on Wednesday where the market expects an update on its potential IPO of its electric division called Ampere.
Problems are growing at the Chinese EV-maker NIO down 55% from its intraday peak back in early August as EV-maker has indicated that it is considering raising equity capital and also laying off 10% of its staff. Even a spin-off of several units is on the table. NIO has never been profitable and the lower entry barriers into the car industry because of electric vehicles technology has increased competition to insane levels making it increasingly difficult to grow fast in a profitable way.
NIO is expected to deliver FY23 revenue of $8.6bn and FY24 revenue of $13.1bn, but still losing money on its operations. In Q1 2021, NIO delivered 20,060 battery electric vehicles (BEVs) compared to BMW’s 14,161 deliveries of BEVs. Fast forward to Q3 2023, BMW delivered 93,931 and NIO delivered only 55,432 highlighting that NIO is falling behind relatively.
Investors that want to get exposure to the EV adoption should seriously think about whether betting on an EV-maker is the most sensible decision or whether investing in other parts of the value chain makes better sense. Our equity note The growing ecosystem around electric vehicles goes a bit deeper into this argument.
Based on the 15 carmakers we track in our BEV model the Q3 delivery figure of BEVs hit 1.7mn up 55% y/y and 2023 is going to be known as the year when BEVs finally hit an inflection point for the overall market including the talk about BEVs impact on oil demand. For Tesla, the Q3 delivery figures also extended the reality that competition is heating up and that its global market share among these 15 carmakers fell to 25.6% down from 31.4% a year ago. This market share is still impressive and Tesla is still more than twice as big as Volkswagen in terms of production, but Tesla is highly likely to lose its top spot in Q4 to Chinese BYD.
Why is this market share trajectory so important? Because the terminal market share in the global BEV market in 2035 is a key input parameter in any Tesla valuation. Tesla’s market value is currently $682bn compared to Toyota’s $303bn. Toyota’s current global market share in ICE (internal combustion engine) is around 10%, so Tesla’s market value reflects potentially different scenarios:
Renault’s CEO said today that on Wednesday, at its capital markets day, the carmaker will announce its plans to IPO its electric division (including hybrid and battery) called Ampere. The group is aiming to get a valuation of around €8-10bn and trying to spin the IPO as an European alternative to Tesla. Renault is one of the most successful carmakers in Europe in terms of the EV adoption but the French carmaker is notoriously bad in breaking out separate BEV figures which are the ones the market cares about, so we are still not including Renault in our model over the BEV market. That will hopefully change with the IPO of Ampere which is expected to launch around April or May next year.
Some analysts already think that an IPO is the wrong choice and that it should be a spin-off because an IPO is dilutive for existing shareholders. But in any case, a rapidly growing Ampere needing a lot of capital to grow fast will be dilutive, but the market will be much wiser on Wednesday about what an IPO means for Renault shareholders. If Renault succeeds with the Ampere IPO and it becomes a success it could force other legacy carmakers such as Volkswagen and Stellantis to IPO their BEV divisions.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
