ARK’s evolving electric vehicle (EV) sales forecast is pointing the way to an all-electric auto industry in the next 5 years. Their conclusion stems from the argument that all new vehicle sales will be electric if prices drop to ~$14,500 on average. Moreover, their analysts say that, while production capacity may not hit 80 million units, EVs still could account for ~90% share of the market by 2027.
Consumers probably will conclude that buying a used car or waiting to buy a new EV will make more economic sense than buying a new ICE vehicle by 2027. As a result, ARK’s research suggests that new vehicle sales globally will drop as internal combustion engine vehicle sales collapse from ~70 million units this year to roughly 10 million units.
Such a drop in ICE vehicle sales could set in motion “a death spiral,” according to ARK, for incumbent automakers. As EV prices decline, consumers could delay their EV purchases or purchase used vehicles at the expense of new ICE vehicle sales. As a result, the factory capacity utilization of ICE vehicles could drop, forcing an increase in depreciation expenses and, in a vicious cycle, boosting ICE vehicle prices further, at the expense of their competitiveness to EVs.
ARK Investment Management LLC, founded by Cathie Wood in 2014, manages several actively managed exchange-traded funds (ETFs). ARK Invest’s thematic investment strategies focus on companies expected to be the leaders, enablers, and beneficiaries of disruptive innovation. It looks to long term growth with low correlation to traditional investments. As we think about ARK’s premise that a majority share of the marketshare by 2027 will be EVs, we must remember that, like many other investment houses, ARK’s assets under management tumbled by 70% in 2022, a partial consequence of the Federal Reserve’s aggressive interest rate increases.
The Market Share Forecast for EVs by 2027
ARK is just one financial outlet. To determine validity, we need to seek support. What are other sources saying about the 2027 picture for EVs?
Fortune Business Insights outlines that the global EV market was $246.70 billion in 2020. They project that the market will grow from $287.36 billion in 2021 to $1,318.22 billion in 2028 at a CAGR of 24.3%. The sudden rise in CAGR, they say, is attributable to the market’s growth and demand, the environmental impact of gas-powered vehicles, and the upsurge in gas prices.
The Light Electric Vehicle Market is projected to grow from $78.5 billion in 2022 to $122.7 billion by 2027, registering a CAGR of 9.4%, over the forecast period, according to a report by MarketsandMarkets.
In the changed post COVID-19 business landscape, the global market for EVs should reach a revised size of 27.5 million units by 2027, growing at a CAGR of 35.5% over the period 2020-2027, as identified by ReportLinker. Battery-electric vehicles are projected to record 44.9% CAGR and reach 23.5 million units by the end of the analysis period. Taking into account the ongoing post pandemic recovery, growth in the plugin hybrid EVs segment is readjusted to a revised 14.8% CAGR for the next 7-year period.
Grandview Research projects that the global EV market demand was about 2,373.5 thousand units in 2019 and is expected to witness a CAGR of 41.5% 2020 to 2027. The market is driven, they say, by initiatives taken by governments of various countries to promote EV manufacturing. For instance, in 2019, the government of Germany and auto manufacturers agreed to raise cash incentives under the “Environment Bonus” plan for battery powered cars. The incentives will reach $6,680 per vehicle, with the auto industry to cover half the cost. Additionally, the government plans to implement these incentives by 2025. The incentives are applicable only on vehicles that cost less than $21,177, thereby resulting in increased demand for EVs from 2020 to 2027.
An IMARC Group research study finds that the global low speed EV market size reached $3.94 billion in 2021. Looking forward, the Group expects the market to reach a value of $9.12 billion by 2027, exhibiting a CAGR of 14.20% during 2022-2027.
It seems, then, that ARK’s anticipation of an EV surge by 2027 is underpinned by outside data. How might Tesla fare within such a scenario?
Does Tesla Have What It Takes to Stay Dominant by 2027?
During its third-quarter earnings call, CEO Elon Musk noted that Tesla is developing a vehicle that will sell at roughly half the price of the Model 3 and Model Y. While vehicles at price-points above $60,000 address ~5% of the total US car market, the addressable market expands to 50% at ~$30,000. In ARK’s view, fears of declining demand for Tesla vehicles are misplaced. If anything, they say Tesla is supply constrained at current price points, and a $30,000 vehicle could expand demand ten-fold. ARK would not be surprised if Tesla’s next-generation vehicle is the cyber robotaxi.
At a September invitation-only Goldman Sachs Communacopia & Technology Conference in San Francisco, Tesla executive Martin Viecha revealed the automaker’s plans for the next 5 years as he spoke at the conference. Viecha responded to a question about the all-electric carmaker’s plans to build a low price option with an unequivocal “eventually.”
The possibility of a more affordable Tesla EV is a must-do because the company wants to be a high volume manufacturer. To become one, it needs a broad portfolio, which will require a less expensive offering. That need for an affordable Tesla is so pressing that, before its company-operated robotaxi service can be unveiled, it seemed as if a lower price model must be produced. “This is an important sales lever that we’ve never touched, but, in the future, we might be boosting demand in other ways,” Viecha responded vaguely.
During the Q3 2022 Tesla conference call, a question was asked regarding the lower cost Tesla vehicle that many people think is critical to the company’s ability to reach 10 million-20 million car sales a year. An institutional investor asked, “The progression from Tesla’s first platform with S/X to the second platform with 3/Y led to a 50% reduction in COGS. When do you see Tesla’s third platform being released and what level of COGS reduction could you achieve?”
Musk’s response was: “Well, we don’t talk exact dates, but this is a — I mean, the primary focus of our New Vehicle Development team, obviously. At this point, we’ve done the engineering for Cybertruck and for Semi and, so, it’s obvious you can guess what we’re working on, which is this next-generation vehicle, which will be about half the cost of the 3/Y platform. It’ll be smaller, to be fair, but it will I think swiftly become — swiftly exceed the product of all of our other vehicles combined.”
As with Viecha, Musk seems to imply that this lower cost Tesla will be for robotaxi service. CleanTechnica’s own Zachary Shahan wrote in September after the Q3 2022 Tesla conference call, “The key note there that is different is that Elon Musk seems to confirm that this lower-cost Tesla will be for robotaxi service.”
Interestingly, Tesla now seems to be happy enough with Full Self Driving that the company opened it up this week to all Tesla owners in the US and Canada who have purchased it. Could this be the necessary step toward a viable robotaxi offering? If we can live with that extended argument, then — by lightning-like calculation — Tesla would have moved part of its catalog toward the lower priced future that ARK envisions with the release of FSD as entree to the robotaxis.
The thought makes Tesla fanboys-and-girls smile as they patiently wait.
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