Bad Tidings For Tesla And Its Peers? 'We're In The Dead Of The EV Winter,' Says Gene Munster, As He Expects Growth To Collapse From 50% In 2023 To 5% This Year

Following a couple of developments in the electric vehicle industry, a tech venture capitalist said Wednesday an EV winter may be setting in.

What Happened: “This has been another rough week for those who believe electrification is the future, present company included,” said Deepwater Asset Management’s Gene Munster in a post on X, formerly Twitter. Ford Motor Co. F announced it was reducing its mix of annual capital expenditure dedicated to pure EVs from about 40% to 30%, the tech entrepreneur said. Blue Oval is dialing back its EV optimism by about 25%, he added.

Munster also noted that Tesla, Inc. TSLA communicated a delay in the buildout of its Illinois battery production factory. The Elon Musk-led company, however, did say it remained committed to the buildout, he said.

Sizing up the two announcements, Munster said, “I believe we're in the dead of the EV winter.” He noted that growth rates of EVs have slowed from 50% in the calendar year 2023 to an estimated 5% in the calendar year 2024.

“More importantly, many of the companies that can invest today to build EV momentum tomorrow are pulling back the reins.”

He added that the common message from these companies has been, “We're delaying, and we're still committed.”

Notwithstanding the hiccups, Munster remained optimistic about EV adoption. “I stand by my prediction that the shift to EVs is an undeniable truth and am increasingly coming to grips that this transition will take longer than I expected,” he said. He, though, sees a change in the slope of the EV adoption curve for the next 10 years. “Time to go back to the drawing board, sharpen my pencil, and return with updated estimates,” he said.

See Also: Best EV Stocks

Why It’s Important: The EV industry’s slowdown started in earnest in 2022 after the global economies emerged out of the pandemic. Incidentally, even amid the thick of the COVID-19 pandemic and the resultant supply-chain disruptions, demand held up.

The economic environment turned hostile after the pandemic, as the stimulus measures lavished by governments and central banks set in motion a wave of inflationary pressure. In the U.S., inflation peaked above 9% in the summer of 2022. The global central banks were left with no other option but to successively raise rates. The U.S. Federal Reserve has taken the Fed funds rate to a 22-year high of 5.25%-5.50% in the current monetary policy cycle and has maintained it at that level till now.

The combination of higher interest rates and inflation that ate away at consumers’ income rendered EV purchases unaffordable, which in turn hurt demand.

To make matters worse, Tesla pursued aggressive price cuts, banking on its scale, and this sent the upstarts into a tailspin. On the other hand, nimble EV startups in China are giving Tesla a run for its money in the country, which is one of the latter’s key markets. Analysts and strategists say the U.S. EV giant is also stymied by a lack of an offering in the sub-$30K segment. The Tesla management’s accent appears to be on making its full self-driving software work fully unsupervised and using that as the core technology for operating its proposed robotaxi fleet.

The environment has also been tough for legacy automakers, which are transitioning to EVs. Ford has substantially scaled back and slowed its EV ambitions and so has its crosstown rival General Motors Corp. GM.

That said, there could be light at the end of the tunnel. Central banks, led by the Fed, are preparing to reverse their rate hikes, potentially later this year, which could improve affordability and in turn demand. In the U.S., the November election results could bring more clarity on the likely policy measures over the next four years. Republican presidential candidate Donald Trump has said he would do away with the federal tax credit for the industry, while the current Democratic regime is in favor of green-energy initiatives but has rarely acknowledged Tesla as the EV leader.

The KraneShares Electric Vehicles and Future Mobility Index ETF KARS rose 2.06% to $18.81 on Wednesday, according to Benzinga Po data.

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