Tesla could claim dominance in a changing Auto market brought about by the global pandemic. Tesla’s growth could spell the end of ICE vehicles and traditional car manufacturers.
Cathie Wood shared some of the insights she and other ARK Invest analysts have observed during the global pandemic and the continuation of lockdowns in certain parts of the world. She talked about the auto sector and how it was faring, given the current state of the world.
According to the ARK Invest CEO, the auto sector—and auto-backed securities—were a “real trouble spot” in the financial industry, particularly in structured finance.
“The bottom line here is the auto industry is in turmoil, and I think we’re going to see tremendous consolidation in the industry itself. We probably will see bankruptcies, especially as electric and ultimately autonomous strategies start to take shape. We’re seeing Tesla already taking a huge amount of share,” said Wood.
She shared that auto delinquency rates—the percentage of loans that are past due—have increased in the United States. According to Wood, auto delinquency rates had been rising consistently for the past few years—even before the pandemic.
The ARK Invest CEO stated that people were staying in their homes during quarantine while cars remained in the garages, which could explain the current trend in auto delinquency rates. She predicted that ride-hailing services and quarantine could further increase past due auto loan payments.
Given Wood’s assessment, Tesla seems poised to dominate the car market with its autonomous electric vehicles. An auto market in turmoil could push the necessary change in the sector for Tesla to achieve its ultimate goal described in Elon Musk’s Master Plan.
Wood’s said that Tesla sales were up 40% in the first quarter while traditional automakers’ sales were down by 35%. Overall, auto sales dropped to about 11 million in the US as of March, compared to 17 million around the same time in 2019. Based on the sales numbers, she concluded Tesla was taking more market share in the auto sector.
Still, some experts argue that decreasing oil prices—due to the tussle between Saudi Arabia and Russia over crude prices—may hurt the EV market and its progress, reported Barron’s. UBS analysts Paul Gong, Patrick Hummel, and Kohei Takashi make a counter argument, saying that lower oil prices will not affect the world’s biggest EV market, namely China and Europe. Indeed, the two countries are taking measures that will help the EV market grow regardless of decreasing oil prices.
For example, the Chinese national government plans to spend around RMB¥10 billion to build EV charging stations all over China, laying a strong foundation for BEVs. Meanwhile, in Europe, new carbon emission laws encourage the move toward electric or new-energy vehicles.
As the auto sector changes to adapt to the pandemic and its after-effects, the end of ICE vehicles may be drawing closer. Tesla could lead the way into a new era in the global auto industry. Tesla’s Robotaxi fleet would provide necessary services for the working class, thereby decreasing the need for people to buy their own vehicles. Another factor that could drive Tesla to dominate and ultimately change the auto sector would be the fact that it only makes and sells electric vehicles.
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