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Clouds Gather Over the Electric Vehicle Industry

The question arises: if government subsidies are withdrawn in the future, how will the number of electric vehicle purchases develop?
This year, the sales of electric vehicles significantly slowed down: in the first quarter, Tesla's sales decreased by 20 percent, while BYD, considered the largest player, sold 40 percent fewer vehicles compared to the previous quarter. Although, on an annual basis, the sales of electric vehicles have still increased globally, it is at a much slower pace than analysts previously expected.

The unexpected results have been priced into the capital market: since the beginning of the year, the S&P electric vehicle index has fallen by 6 percent, BYD's American depositary receipts have gone down by 4 percent, and Tesla has decreased by 28 percent, underperforming the S&P 500 stock index's performance of 9 percent this year.

DEMAND ISSUES

Analysts believe the slowdown in sales is clearly more due to demand issues. Car dealers say that average car buyers are still skeptical about electric vehicles due to higher prices and the lack of charging station infrastructure. These factors make the use of electric vehicles less convenient compared to vehicles equipped with internal combustion engines or hybrids.

Another possible explanation for the decrease in demand for electric vehicles is that those who wanted to buy an electric vehicle have already done so. Typically, these are individuals willing to try new technology, not necessarily prioritizing the practicality of the vehicle, often also owning a gasoline vehicle, and having the ability to charge the car at home.

Another disadvantage from a sales perspective is that used electric vehicles are difficult to resell, as their residual value cannot be predicted, therefore, car dealers purchase these used vehicles at a discounted rate. Moreover, the insurance and repair costs of electric vehicles in the event of an accident are significantly higher than those for gasoline vehicles.

NORWAY AT 87 PERCENT

Support from governments of developed countries to consumers, such as tax incentives, have generated artificial demand over the past years. A prime example of this is Norway, where 87 percent of new car sales are electric vehicles, for which buyers in the Scandinavian country do not have to pay taxes.

This raises the question of how the number of electric vehicle purchases will develop if government subsidies are withdrawn in the future. In December 2023, the German government, which had spent 10 billion euros on supporting electric vehicles since 2016, suddenly withdrew state subsidies for them. Analysts say that electric vehicle sales in Germany would have to increase sixfold by 2030 to reach the target of having 15 million electric vehicles on the German roads.

The future of the electric vehicle industry is currently very uncertain.

If demand for electric vehicles continues to decline, these stocks will undergo further devaluation.
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