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24 January 2019

Electric car momentum stays strong, though investment is tricky

Norbert Rücker, Head Macro & Commodity Research, Julius Baer

BLOOMBERG/Giulia Marchi

The auto business was not exactly a bright spot in 2018, except for electric cars. The momentum in electric car sales remained very strong and the market share in global passenger car sales almost doubled from 1.8 per cent in 2017 to 3.2 per cent in 2018. The current pace makes most predictions on electric car sales look too cautious, including ours. However, the driving force behind was China, which now accounts for more than one out of two electric cars sold globally, and where the coming subsidy adjustments likely triggered a late-year purchasing rush. While sales are set to expand only slowly this year, the pace should pick up again in 2020, when most incumbent carmakers roll out their electric car offering. The long-term prospects for electric cars are bright as battery costs drop, driving range expands and model offering multiplies. A market share of 10 per cent seems well in reach by 2025.


Unfortunately, investing in the future mobility theme remains tricky. The auto business slowdown and profitability concerns remain a near-term overhang and the chances for further earnings revisions remain a headwind for the sector’s share prices generally. The valuations seem more reasonable following last year’s correction but the looming Chinese electric car growth dent most likely limits the chances for a near-term rebound. Concerning battery metals, the shortage fears disappeared as output swells and buyers no longer scramble for supplies. Both lithium and cobalt are unlikely to be in short supply for the coming years as the past years’ investments bear fruit. The shift to nickel-based battery chemistries limits cobalt’s prospects additionally.


The auto business was not a bright spot in 2018 but the momentum in electric car sales beat most predictions. Strong sales in China lifted the market share of electric cars towards 3.2 per cent globally. However, investing in the future mobility theme remains tricky, as earnings downgrades and the likely slowdown in China remain near-term headwinds for the shares.




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