The transition from internal combustion engines to electric vehicles was never going to be easy. But the gradual arrival of battery-powered cars drove sprawling plans to make EVs and EV batteries in the U.S., with companies like Tesla, Ford Motor and General Motors leading the charge.
Whatever the answer, a future that seemed inevitable now looks incredibly challenging for everyone involved. And the entire EV and battery supply chain has come under scrutiny, with consequences both for EV battery stocks and other EV stocks.
"Automakers are losing tens of thousands of dollars for each electric vehicle sold," said CFRA equity analyst Garrett Nelson. "Something had to give, and it has given."
Electric Vehicles And The EV Battery Stocks
Spurred in part by new federal laws, automakers and their partners over the past couple years splashed out $82 billion in planned spending on 96 new or expanded battery plants.
A North American battery belt emerged, stretching from Canada to Mexico. In the U.S., it spread beyond the traditional auto manufacturing strongholds of Michigan, Ohio and Indiana. It reached as far south and east as Kentucky, Tennessee, Georgia and the Carolinas.
Further west, Tesla has battery plants in Fremont, Calif.; Storey County, Nev.; and Austin, Texas.
Operations sprouted for everything from lithium mining and processing to battery development, and from EV assembly to battery recycling and upcycling.
In the Southeast, the battery belt included Ultium's Spring Hill, Tenn., plant, planned for completion early in 2024. BlueOval-SK started two factories in Glendale, Ky., the first set to launch production in 2025.
Ultium is an EV battery joint venture between GM and South Korea's LGES. BlueOval-SK is Ford's battery-making venture with South Korea's SK On.
In June, BlueOval-SK received a conditional commitment loan of $9.2 billion from the U.S. Department of Energy for three battery facilities, including the two in Glendale, Ky.
The buildout of U.S.-based supply and operations has enlisted a vast supporting cast. Among the top publicly traded names, chemicals leader Albemarle and miner Piedmont Lithium are lithium providers.
EV battery stock Freyr Battery slipped into the U.S. public market via a special purpose acquisition company in 2021. It announced last month it would minimize investment and lay off workers at its home plants in Norway. Instead, it plans to concentrate on a $2.57 billion project in Coweta County, Ga., to supply batteries that help EVs qualify for the Inflation Reduction Act's U.S. content standards.
Spending By EV Stocks, EV Battery Stocks
But even with that focus on the U.S. market, makers of electric vehicles are entering a go-slow zone in battery investments.
Analysts see the backslide as somewhat inevitable after the recent round of record-breaking labor contracts. GM and Ford expect those agreements will increase their per-vehicle costs by about $600 to $900.
Analysts see risks to the growth of the still immature U.S. battery cell ecosystem, which demands massive infusions of capital.
"The cutbacks in EV spending will filter through the entire supply chain," said James Mills, principal consultant at battery research firm Benchmark Minerals Intelligence. "Critical minerals deals will slow down, impacting the growth of raw materials."
Ford in November reduced plans for its flagship Michigan EV battery facility by 800 jobs and more than $1 billion in spending. The moves cut the facility's production capacity by 43%.
That came after Ford in October postponed $12 billion in investments for EV manufacturing, out of a target $50 billion by 2025. The moves include delaying the second BlueOval-SK battery plant in Glendale, Ky.
GM slowed the launch of new EVs and a factory retooling in Michigan. It also ended a plan to make affordable electric cars with Honda Motor. The company's EV delays will save at least $1.5 billion — a small portion of GM's $35 billion in targeted EV spending by 2025.
Toyota Motor and Volkswagen similarly downsized EV plans. Toyota cut its local EV sales forecast by 40% for 2024 due primarily, it said, to weakening demand in China. Volkswagen cut its EV production levels and canceled plans for a new $2 billion factory in Wolfsburg, Germany.
Alla Kolesnikova, head of data for battery research firm Adamas Intelligence, says a pause may give all the players a better understanding of the market.
Even before the Ford and GM spending pullbacks, building a resilient North American EV battery chain was a "multilevel challenge," according to Kolesnikova.
"The sourcing part of the equation is already lagging," she said. "It was behind from the very beginning."
China Dominates EV Battery Supply
The sourcing issue underscores the weakest link in the North American EV battery supply chain: critical minerals.
Reduced spending threatens efforts to pick up the pace in domestic mining and processing of the essential ingredients needed to build batteries. Those include lithium, graphite, nickel, copper and cobalt.
The issue is how to get sustainably sourced battery materials. For example, Kolesnikova says cobalt supplied from "more transparent" Canadian mines could be a viable alternative to the Democratic Republic of the Congo, where abuses in cobalt mining are widespread.
In the meantime, the dilemma regarding supplies of cobalt and other materials has at least one clear beneficiary. "The winner is China," Mills said in an email.
China is the beating heart of the global battery chain. It commands a 70% share of the global output of battery cells, Benchmark data shows. And it is home to 55% of the world's lithium processing capacity.
That has made the U.S. highly dependent on China for EV components and battery materials.
President Joe Biden laid the groundwork for breaking that dependence with the Bipartisan Infrastructure Law in 2021 and the Inflation Reduction Act of 2022.
The laws sought to light a fuse for made-in-America electric vehicles. They offered billions of dollars in tax credits, grants and loans to manufacturers and consumers based on domestic battery sourcing and manufacturing of electric vehicles.
Those funds, and the requirements to attain them, helped spur the battery belt boom of the past two years.
Electric Vehicles Battery Stocks: Minerals Production
To meet U.S. requirements, Albemarle, the world's largest lithium producer, aims to revive its dormant Kings Mountain mine in North Carolina. Switzerland-based Glencore, the world's biggest cobalt miner, is trying to restore forgotten mines and develop refineries in Canada's Ontario province.
The revival of those mothballed sites was supposed to support the North American battery supply chain. Yet things haven't gone according to plan.
All along the sputtering battery belt, adjustments are happening — from producers of critical metals to the companies turning that feed into batteries for the electric vehicle market.
South Korea's LGES and SK On both recently laid off battery plant workers in Michigan and Georgia. That was on top of delays to new projects and production cuts.
Mines can take five to 15 years from discovery to first production, so delays could set off a scramble for resources. From a battery supply standpoint, pain is sure to come — but when?
Given four-year lead times in new auto introductions, investments through 2025 are already in place, says Arun Kumar, a partner at auto consultancy AlixPartners.
He expects impact from delays in capital outlays for EV manufacturing to be felt in 2026 and beyond.
"Longer term, the market is still going to be electric vehicles," Kumar said. "But it's a question of timing."
Tesla Losing EV Subsidies In Three Key Markets
EV Stocks: Tesla, GM, Ford Adjust
Ebbs and flows of investment are normal in autos. So no one expected "a smooth upward trajectory" for electric cars, Kumar says.
Still, hope may be as scarce as battery minerals in the EV landscape these days. Tesla has tempered its ambitions for the Cybertruck, its first new vehicle in years. And CEO Elon Musk seemed less certain on the 2025 production launch of a $5 billion manufacturing site planned in Monterrey, Mexico.
Other makers of electric vehicles and their suppliers are recasting exuberant expectations.
GM and Ford management are under the gun. They must prove to Wall Street that they can sell electric vehicles in volumes high enough to make a profit on each sale, Kumar says.
As auto giants dial back plans, Mills warns that the recent trend toward "backward integration and direct partnerships" with battery suppliers could slow down. With that in mind, analysts will be keeping a close eye on deals struck by GM and Ford with several early-stage lithium companies, including Lithium Americas and Compass Minerals.
Short-Term Bumps In A Long EV Ramp-Up
In addition, those sorts of bets may be harder to come by, Mills says.
When they do come, automakers may be "far more focused on supporting proven companies," Livent CEO Paul Graves said on an Oct. 31 earnings call.
In the long run, smaller players like lithium producer Livent also face more serious challenges. Energy heavyweights Exxon Mobil and Chevron have both announced plans to move decisively into the lithium supply chain. Exxon aims to be the world's leading lithium supplier by 2030.
Meanwhile, Philadelphia-based Livent is bulking up itself, even as it delays new projects and lithium prices collapse. Livent is set to merge with Argentina's Allkem by the end of the year.
Livent CEO Graves told analysts he expects prices to bounce back as demand inevitably grows. He dismissed fears of an electric vehicles slowdown. And he batted away questions about the mood among Livent's customers, which include Tesla and GM.
"These are all bumps in the road, but the long-term trend is not impacted at all, to be honest," Graves said.
Electric Vehicles: Battery Suppliers Adjust Too
As the EV sales growth slowdown takes hold, battery makers have some flexibility to target the growing ESS (energy storage system) market, analysts told IBD.
But it is not an easy shift. More than 70% of American battery cell plants tailor their products for each automotive customer, Benchmark's Mills says. This limits their ability to supply unique, parallel markets.
More automakers are also moving to lower-cost, iron-based LFP batteries in the U.S. and Europe. Pricier nickel-based batteries led the way up to now. Some observers have wondered whether this market shift to LFP is a response to current market conditions, meant to stimulate EV demand.
Not really, those in the know like Graves say. Rather, they insist, automakers were always expected to use LFP cells to make EVs more affordable and mainstream. Electric cars typically cost more than combustion vehicles due to high battery costs.
Tesla Chilled Electric Vehicles Stocks
Some experts say it's too early to talk about winners and losers among EV stocks and EV battery stocks. Others have opinions.
"Tesla is definitely gaining in this scenario," Prateek Biswas, an EV supply-chain analyst at Wood Mackenzie, said in an email. He sees GM's and Ford's EV delays pushing buyers toward Tesla cars.
Yet it was a demand warning from Tesla in October that sparked a fresh sell-off for EV stocks. Tesla is one of the top two global EV makers, which is why so many investors sat up and took note of its caution.
Meanwhile, Tesla keeps discounting prices.
For GM and Ford, there's a double whammy. Electric vehicle sales are slowing while new labor contracts are adding hundreds of dollars in costs for every vehicle they sell on the internal combustion engine side.
They quickly took EV capital investments off the table. Return on invested capital is a key metric in this industry.
The moves were something of a gamble.
"You want to be careful that you don't take your eyes off the ball in the EV transition," said AlixPartners' Kumar. "If you do, it's going to be tough to catch up."
The threat has moved beyond Tesla to startups. Rivian delivered 36,150 electric trucks and SUVs in the first nine months of 2023, not that far behind 46,671 for Ford.
Profit Trends Among EV Stocks
As costs increase across traditional cars and EVs, the earnings consensus for GM and Ford is down sharply since October, FactSet shows.
In a Nov. 21 note to clients, CFRA's Nelson predicted a "significant" near-term earnings impact from GM's EV transition.
On Nov. 29, Morgan Stanley analyst Adam Jonas highlighted "ever higher levels of investment spending by the U.S. legacy auto firms," far exceeding that of the average S&P 500 company.
"This cannot continue," Jonas said, in a note titled "Can Detroit Break Its Addiction To Capital?"
Jonas cautioned that the companies' EV investments look especially risky when margins have weakened for even the industry's profit leader, Tesla. Tesla has far higher EV volumes and much lower costs than GM or Ford, he pointed out.
Ford expects its EV business to lose $4.5 billion this year. GM expects negative EV margins.
"There was a lack of appreciation of how difficult it is to pivot from ICE to EV," CFRA's Nelson said.
As for the startup EV stocks, Nelson told IBD he worries about more restrictive capital markets, bankruptcies and going-concern warnings. Even Rivian, despite early sales success, is burning cash at a rate that he finds unsustainable.
At the start of December, Rivian announced it would lay off 20 workers from its long-range battery operations.
Cheap, Small Electric SUVs, Hybrid Cars
All of this points to a key test coming for EV sales, and for the battery manufacturing and supply sector that its supports.
Dozens of new EV models will arrive over the next year or so, led by the Chevy Equinox and Volvo EX30.
Analysts say those two vehicles fill a hole in the electric car market — for small SUVs costing less than $40,000, which are in highest demand.
The vehicles will test how well the market is growing beyond early enthusiasts to mass adopters.
"I would expect sales to go up a lot because that's the exact type of vehicle that everyone says they want," said Brian Moody, executive editor at Kelly Blue Book.
Sales of fully electric vehicles are growing in the U.S., but less briskly than before. They are on track to hit 1 million this year, or 8% of the total car market. But inventories are growing, and EV sales grew just 6% sequentially in the third quarter, after a 14% jump in the prior three months, Kelley Blue Book data shows.
Hybrids Vs. Electric Vehicles
Hybrid cars, however, which create less battery demand than full-on EVs, are hot.
Toyota sold 455,142 hybrid vehicles in the U.S. market over the first nine months of 2023. It trailed the 493,153 Tesla cars sold over the same period, but not by much.
Hybrid vehicles are popular because of fewer trade-offs, analysts say. They pollute less than gasoline-only cars, and the smaller batteries of plug-in hybrids charge much quicker than all-electric cars.
"Whatever the clean energy goals are, we can probably get there faster with hybrid vehicles," said Moody. He cited a recent Kelley Blue Book study in which 63% of car shoppers said hybrids fit their needs better.
EV Stocks In Focus: Tesla Stock And Others
What are the recent trends among EV battery stocks and other EV stocks?
Tesla stock, despite all its back and forth, has managed a 106% gain so far this year. That puts it about even with where it started 2021.
Investors this year continued to cool on would-be EV stock rivals to Tesla. Shares of GM and Ford are mired at multiyear lows. Rivian stock, Lucid and Fisker are just above record lows.
Accelerating hybrid sales helped hoist shares of Toyota and Honda. Toyota has a year-to-date gain of 33%. Honda has advanced 26% but is well off its September highs.
And what about EV battery stocks?
On the battery and minerals supply side, it's even harder to find winners. Albemarle and Piedmont show steep year-to-date losses. Freyr has given up 78%.
In the year ahead, Kolesnikova says she will watch how the market develops. Among other things, she is eager to see how well the Cybertruck performs and whether GM and Ford will offer more hybrid cars.
All that gives her hope. Despite the blip in demand and the spending cutbacks, she expects the majority of battery plants to get built eventually after the kinks are sorted out.
"I do think it would not wipe out the battery belt" over the longer term, she said.
