Overview
FirstGroup is set to acquire Ensignbus Company which will strengthen its regional commercial and B2B business presence in Essex. The synergies lie in rail replacement, vehicle refurbishment, and private hire operations. The market response was muted upon announcement however when the deal closes, there might be an uplift.
Subaru (in collaboration with its strategic partner Toyota) announced plans to ramp up its EV offering in the US market, with a pipeline to offer multiple EV offerings by 2025. 2025 might be ambitious as their in-house EV assembly line is set to be operational in 2027. However, the company’s strategic partnership with Toyota will help accelerate the production of EVs and thus enter the US market. The US market accounts for e75% of Subaru’s global sales, so it is not a surprise announcement.
Hyundai, at the 2023 Chicago Auto Show, unveiled its Evolve+ EV monthly subscription service. This will allow consumers the flexibility and affordability to try EVs. The subscription is $699/month for a Kona Electric and $899/month for an IONIQ 5. This covers 1,000 miles, insurance, maintenance, registration, and roadside assistance. The Evolve+ will be initially rolled out at select dealerships in 6 states with plans to expand the offering by end of 2023. Although this service is competitively priced vs traditional leases/purchases, it is very expensive vs daily car rental offerings.
Rolec EV and Monta announced they are collaborating to deliver > 20,000 charge points across the UK in 2023. Together Monta and Rolec will embark on the largest transition of charge points onto Monta’s platform and existing customers will be migrated to Monta’s platform. As a result of the partnership, Rolec drivers will have access to thousands of charge points on the Monta network with the ability to be reimbursed for their charge through the Monta wallet.
Jato Dynamics 2022 data has been published that shows that the Tesla Model Y was the most popular EV in Europe. Model Y sold 137,052. However, Volkswagen Group retained its status as the leading European EV manufacturer by volume with 349,200 EVs but lost 3% market share to Tesla, Stellantis, BMW Group, Geely Group, and several Chinese OEMs last year. Interestingly, Chinese OEM EV presence doubled in 2022 (vs 2021). This was driven by strong demand for the Polestar 2, Volvo XC40, and Volvo C40 in Sweden, Norway, Germany, and the UK.
M&A
Zeekr, one of Geely's EV brands, is raising $750m which implies a $13bn valuation. New investors include Mobileye founder Amnon Shashua and the Guangzhou city municipal government’s investment arm, Yuexiu Industrial Fund. The capital will be deployed to expand the Zeekr brand globally and support technology research.
indie Semiconductor has entered into a definitive agreement to purchase GEO Semiconductor for $275m. indie focuses on video processors for automotive cameras whereas GEO specializes in being a private fabless semiconductor supplier. The acquisition helps indie scaling up their Image Processing program and enables true sensor fusion of Radar, LiDAR, Ultrasound and Computer Vision solutions in advanced driver-assistance systems (ADAS) applications.
Report Spotlight
S&P Global released a very bearish prediction on 2023 EV Sales. However, interestingly all 3 key regions (USA, China, and Europe) have differing macroeconomic headwinds:
- In China the key factor is the expiration (as of 01/01/23) of China's subsidies on EVs, which have existed since 2009 in some form. This led to NEV sales accounting for 33.8% of the country's total vehicle sales in November.
- In anticipation of this expiration, some Chinese battery makers have substantially reduced output since early December because demand in the coming months was not looking promising. I would argue that is a cooling-off period/deceleration(short-term), as opposed to a contraction in the Chinese market.
- In the USA the bearish 2023 EV outlook is based on the timing of the Inflation Reduction Act. The purpose of this Act is to boost EV sales in the US. However, according to S&P most of the positive effects are not expected to be realized until 2024. Q1 24 onwards, buyers will be able to use the EV tax credit value to lower the price of the vehicle directly, instead of receiving tax credits.
- The thematic headwinds revolve around trying to minimize an inevitable recession in 2023**. The debate currently seems to be whether it will be a technical or shallow recession.** Considering the past 3 quarters, this is a stronger position for the USA. However, any recession will still result in high(er) prices which will diminish purchasing power alongside aggressive Federal Reserve policy increasing borrowing costs.
- In Europe inflation and (high) energy costs are the main risk factors. Europe appears to be in a state of flux with sticky inflation, stunted hiring, and ever-increasing interest rates, which have led to contraction predictions of around 1% of GDP over Q4 2022 and Q1 2023. However, bulge bank consensus sentiment is that 2023 is set to be less turbulent for markets, with inflation moderating and major central banks approaching the end of their tightening cycles.
- These tough economic realities alongside a number of countries ending/significantly reducing incentives/subsidiaries and increasing battery metal prices (esp Lithium as of Q4 22) are predicted to have a negative impact on 2023 EV sales/demand.
- Strong EV figures for 2022 seem to stem from EV purchases being brought forward due to the end of incentives, so they are misleading if you use this as the base for future predictions.
Long-term EV growth remains positive driven by strong structural trends based on transitioning to Net Zero. Regulation in these key regions is a main driver:
- China issued a proposal for automakers' new energy vehicle quotas that would increase to 28% in 2024 and 38% in 2025 vs 18% in 2023.
- In the US, even before the IRA, the Environmental Protection Agency finalized greenhouse gas emissions standards for vehicles for the 2023-2026 period with a roughly 8% annual average increase in stringency.
- The EU is currently finishing new rules on CO2 emissions that would effectively ban sales of ICE vehicles in 2035.
Fun Fact for the week: As of Q3 22 China has over 1.4m EV charging points vs e400,000 in Europe vs e140,000 in the USA.