EV Boom’s Road Gets Bumpy, and So Goes Apple, So Goes The Market? 1/5/23

0:01Live from the Nasdaq market site in the heart of New York City's Times Square. This is Fast out. One year ago, the EV boom was all the rage, but today there are new challenges that could be holding back sales growth and the stocks. A deep dive under the hood coming up. And later, as Carter Braxton-Worth would say, a bearish to bullish reversal by one of our traders on NVIDIA. The airline is flying high despite a jump in oil prices and Maple Bear Blues, a new low for the Instacart parent company. I'm Melissa Lee coming to you live from Studio B at the NASDAQ. On the us tonight, Tim Seymour, Steve Grasso, Dan Nathan, and Julie Beal.

0:48We'll get to the markets and the major averages closing lower for the week. The first time that's happened in almost two and a half months. Apple, a big drag, falling over 6 % since Monday. Much more on that coming up. But we begin with a losing week for Tesla and most of the major automakers. While year-on-year EV sales continue to climb, the pace of electric adoption is beginning to show signs of fatigue. Our own Phil LeBeau is here to take us inside the numbers. Hey, Phil. Hey, Melissa, a lot of people have been asking me, what's wrong with the EV market? Why isn't it going as fast as it was a year ago?

1:20Oh, it's growing. It's just that perhaps expectations were getting a little too frothy in terms of how quickly it would be growing. A little bit of reality check in terms of the numbers and EV sales. EVs in the U.S. in 2023, now this is according to Motor Intelligence, made up 7.6 % of the market. Look at the growth compared to 22 and 21. It's been very steady. And again, 7.6 % of the market might get close to 9%, 9.5%, 10 % next year. Tesla is the stock I want to show you. The sales last year in the U.S., overall, deliveries were up about 38 % worldwide, up 25.4 % in the U.S. So they've had steady growth, especially when it comes to the Model Y and the Model 3.

2:04And it brings up the question, well, is Tesla still in charge of the market? And how much has their dominance eroded? Has it eroded? Yes, their market share has come back, largely because there are so many other EVs that are in the market right now. And this is the comparison of EVs versus hybrids. Hybrids have outpaced EVs in the last year, as consumers rotated towards a cheaper option, if you will, because EVs are about$10 ,000 on average, more expensive than hybrids, at least at this time. In terms of EV market share, you've got Tesla at 55.1%, And then it's Hyundai, Kia, GM, Ford, Volkswagen.

2:43They're all growing their sales. It's just that when you take a look at GM and Ford, once they said that they were going to defer some of their EV investments, that was part of taking the bloom off the rose, if you will, when it comes to EVs in the U.S. Finally, I want to take a look at Rivian, Fisker, and Lucid. I'm calling these the U.S. EV startups. You know how much their sales were up last year, Melissa? 151%. I know that investors will sit here and say, hey, look, Fisker has its issues. Lucid definitely has its issues. You know, there's nothing good happening here. They are growing sales, Melissa.

3:16It's just that the pace of sales growth is not what many thought it would be back in 2022, starting 2023. Phil, I want to get to hybrid electric vehicles versus EVs. Is there a sense that, you know, when you lose an ICE customer to an alternative energy vehicle, that that customer is more likely to go to hybrid? The numbers seem like they're going faster to hybrid as opposed to EV. They are going faster. When I talk with dealers, here's what I hear from them. Increasingly, customers are saying, I'm interested in electric, but I'm not quite there for taking the full step. How about a gas-electric hybrid?

3:54And in this market, when you look at whether it's Toyota or Honda, Ford has the most offerings for hybrids among the big three. Increasingly, what I'm hearing from dealers is customers are more comfortable with that, partially because of price, but also because they want greater fuel economy. They're just not ready to go all the way when it comes to electric models. And the big thing that's got to change, Melissa, pricing. You have got to have more EVs that are coming closer to$40 ,000,$30 ,000. Until that happens, you're going to have a very limited market in terms of growth. Because you're selling an average EV at$51 ,000.

4:32There's growth there. There's just not a ton of growth. Do you think, Phil, that the major automakers sort of got offsides in terms of how they position their portfolio by going too fully into EVs versus recognizing that there could be an in-between a hybrid electric vehicle market that could be actually robust and profitable? Well, look, Jim Farley pivoted. And when did he do that? First quarter last year? I think that's when he said, you know what? There is a huge market here for hybrids. We can make the F-150 hybrid and there is demand there. So he pivoted and it's been successful for Ford.

5:05General Motors is sticking with his strategy in terms of you've got the ICE portfolio and then you've got the EV portfolio. But the pressure is going to be on GM this year that their Altium battery cells, which they've had problems ramping up production. Can they finally get it together in 2024? Because people are going to say, OK, you've got the Blazer that's out there now. Can you ramp up deliveries of that? The Silverado electric is out there. I've never heard anybody say to me, where's the Silverado electric? Some were delivered late in the fourth quarter, but it's very low on the radar. That's got to change in 2024.

5:39for. Phil, thank you. Always great to see you. Phil LeBeau. You bet. So is GM going to pay for this, Tim? I mean, it seems a little bit like a misstep in terms of, you know, aligning your portfolio completely to EV, ICE or EV, and nothing in between, at this point at least. Well, it seems like it's, especially when we're getting some data points this week, we heard about BYD, and as much as it was an exciting story how they exceeded Tesla in the fourth quarter, really their story has been hybrid, and they are the largest player in the world on that. GM, you would think that Detroit would be more focused on hybrid.

6:11It's easy to say this today. I get it. EV has been a story, certainly a high growth, a sexy story. But when you consider the powertrain mix and some of the ability to have and utilize a lot of their infrastructure and again, where Tesla and BYD, these are vertically integrated companies in a lot of places. Detroit has tried to move very far away from that. The hybrid kind of keeps them in their wheelhouse on some level, at least in terms of a lot of it. So I think GM's going to have to look. It's forget about where politicians are. Forget about where like the markets are, where people are able to raise money.

6:44It's where the customers are going. And the U.S. customers, I think, largely are leaning towards hybrid. Do you think it was more political driven why these companies went that way? I feel like there's there's a healthy amount of that. Right. Because that's where I think it's 80 percent. We're pushing Ford and GM to get certain benchmarks by what is what is the level of 2030? You have to lower emissions, right? And the fastest way to do that is to sell an EV versus a hybrid EV. So they could own that market. Tesla owns the EV market. They could really own that market. And then it makes me think about what critical elements go into these cars.

7:21That's a whole other level, right? So you'll get a stock like MP, lithium, cobalt, nickel, all those things you don't need anymore. Or you don't need them to the extent that you would for an EV. It's better for the environment. I think you're better to go to hybrid, and I think Ford and GM could win. You know, it's interesting. All the pillars of the bear case for Tesla over the last few years have actually started to come true. Competition was a big one of them. Pricing was a big one. I mean, when you really think about it, and a lot of folks, we've been talking about it. We've been debating this stock for years now, and a lot of it has had to do with valuation.

7:52And here it is. Three years later from joining the S &P 500, it's basically the exact same spot where it was. The S &P in that time period is up 27 % since late Q4 of 2020 when it was added to the S &P 500. It traded as high as 400. It traded as low as 100. It's trading the exact midpoint of that range. So it's really interesting. There is a very healthy bull bear debate going. And if you want to look at someone like me, who's obviously you guys are you guys, I'm putting it you guys, you know, think that I've been notoriously bearish on this company for a long time. Listen. Well, it was your acronym.

8:26Yeah, it was. But both sides have been very right on this story. And I'll tell you why something's got to give is because it's three quarters of a trillion dollars in market cap. And we're talking about all the mistakes that GM and Ford have made. Interestingly, if you plot them all against each other, they're all basically where they were trading three years ago. You know what I mean? But one has a valuation that sticks out like a sore thumb and is the one to come after. And I think some of this is all rooted in the stock market because, again, the valuation is because of not only, I just think, the buzz and the hype around it.

9:00Is Tesla far out ahead? There's no question about it. But, you know, you look at a Fisker or a Nikola or these companies that are going out of business or, you know, about to be there. And, first of all, they came public in SPACs where no one really had to check a lot of the projected numbers around them. No one really cared during a time when markets were flying. Tesla, five years ago, almost went out of business. I mean, I was I'll just say it this way in terms of their balance sheet. You know, so maybe that's that's an exaggeration other than to say I do think their finances were very, very much stretched.

9:31And I do think that capital markets allowed them an opportunity through the share price to raise a lot of money. So the point is, though, that even the best of them all was struggling financially with a balance sheet. If you look at all the other EV players that are pure EV players around the world, they're struggling financially. I think what's interesting, too, is that when we thought about the EV competition in the landscape, particularly when it came to these startups, you thought about who else had these EVs and you thought Tesla has a sexy car, etc. But you didn't think hybrids were going to be the competition for some of these because the price tag is way too high and Americans may prefer to have a hybrid just because they have range anxiety at this point, Julie.

10:07Yeah, absolutely. I think what people forget, right, is that Toyota, when it released its Prius in the very first, I don't know, two or three years, that car took off like crazy. And that is easily the ugliest car I've ever seen in my life. Right. But they were able to do that. Right. Because the price was right. And that's really what's been holding back EVs, I think, is just the pricing has been such a problem for them. So for many people who would like to move in that direction, it's not even just regular hybrids, but these plug-in hybrids that allow you to avoid going to the gas station when you're just doing your regular commute.

10:40But if you want to take a trip two to three to four hours out, you can do that with zero anxiety. And the thing is, too, is you think of it from an environmental standpoint, you're taking a lot of the emissions off the road, but you're doing it with less need for these huge, intense batteries that are actually pretty negative for the environment. So to me, These plug-in hybrids make the most sense, and it's all about pricing for consumers. Our next guest says barriers to entry into the EV market are still far too high for consumers, and that could call the electric transition into question. Alexander Edwards is president of Strategic Vision.

11:14The firm provides consumer insights on the auto industry. Alexander, great to have you with us. You know, a lot of car makers, and I'm thinking really of Tesla, they're cutting price, thinking that consumers will come at that point. What does your research show in terms of consumers' willingness to make that tradeoff, to not go hybrid, to not stick with the ICE engines, and to actually go EV? I mean, does price really make a difference? If Tesla came out and said$10 ,000 less, would that move the needle? Absolutely would move the needle. As we've been discussing, price is a really important issue when it comes to how consumers think about are they going to purchase a certain vehicle.

11:52But it's more than just price. It really comes to are most consumers willing to pay more for what they perceive as a compromise. And that could be a compromise for the distance it can go, for how they refuel and charging issues, as well as the price where they're spending more money. And so for every dollar they spend, they're getting less convenience, less mobility out of that. So we already have a lot of incentives associated with buying an EV. So the price comes down because of that. The price comes down also from the manufacturer. So we're seeing all sorts of price enhancements for the consumer at this point.

12:28Do you think that it's enough or do you think the EV market will still will still hit a road bump, so to speak, simply because of that tradeoff, not willing to make that tradeoff? Well, yes. And we're going to see that, you know, we have different mandates going in various states, as well as desires for federal mandates in order to have EVs be the primary vehicle. we're not going to be able to hit those because consumers aren't ready to go there. Right now we've got roughly about 60 % of everyone who purchases an EV saying that the government incentive, as well as manufacturer incentives, were an important part in that decision.

13:07If we ever get to a place where we take away those incentives, or if we can't get the price even lower, as some folks have said already earlier today, you're going to have a much smaller market to go for. People love their EVs, but the compromises they have to make, especially when it comes to, is there a place that I'm going to be able to charge and not get stuck at? Because I've heard so many stories of others that love their EVs, but are satisfied or maybe even a little disappointed in what's going on with charging and other aspects to go around with EV ownership today. Hey, Alexander, it's Tim.

13:46Thanks for joining us. How about some of the sacrifices that the manufacturers have to make? And I just want to get into some of the structural dynamics of the difference between, and we keep saying ICE. I don't mean to be patronizing, but for folks at home, that's an internal combustion engine. So ICE versus EV and hybrid. You know, the big three, obviously, but Toyota. I mean, these are companies, and it gets down to the sales force. And remember, you know, at least Tesla is famous and so is Rivian for going straight to consumer. The way the traditional companies are set up is very different than these new companies.

14:18Is that part of why hybrid maybe still is going to be, you know, the one that wins out? Well, I think that's certainly going to be part of it. Dealers know how to sell hybrids. They know how to sell ICE vehicles. And when it comes to EVs, there's still a lot of difficulty in knowing exactly what are the right levelers or things they could say in order to motivate that sale. And so they know how to do that. But more importantly, consumers have an understanding of what they need for their own personal mobility. They know I have to go here, here, and here, and I want to do it in a certain way. Tesla's found a lot of success because they didn't sell an EV.

15:02They sell a sports car with best in class performance. Whenever the consumer stepped on that accelerator, it was safer because it was more responsive and it was more fun to drive. This is why Tesla found success and everyone else really struggled because Tesla was selling something that wasn't a compromise. It was best in class. If we're going to try to continue to sell EVs simply because it's electric, we're never going to see sales that are in numbers that are going to be 2030 and, heaven forbidden, California by 2035, 100 percent. We can't get there. We need to make sure that we address price, infrastructure, and how consumers use their vehicles today.

15:46We're not a political show, Alexander, as you know, but you had some political commentary embedded in your survey, which I thought was interesting in that it shows maybe another reason to be reluctant to buy an EV. And you say it's because people associate EVs with Democrats. Is that what you're finding? It is an aspect to it. So right now, there are a number of buyers that when everybody looks at anything in the consumer world, they give it a personality. And one personality that is emerging in the EV market is that EVs are Democrats, progressives. And there are a number of consumers who would love what an EV has to offer, but are actually rejecting it because of that imagery and personality that's been emerging.

16:36We've been trying to caution both legislatures, as well as those at OEM, at the manufacturers, saying, please, let's try to keep all of this, you know, talking about how EVs have to be what sells. Otherwise, you're going to make it political. And if you make it political, you're going to remove potential buyers from the whole situation. And that's proving to be a imaginary barrier to real EV consideration. Alexander, thanks for joining us. Appreciate your time. Interesting findings. Thank you very much for having me. Thank you, everyone. All right, so here's a would you rather. I'll pose it to Tim.

17:19Okay. GM or Toyota in the context of this conversation? Okay, that helps. Definitely Toyota. No, because, I mean, Toyota, first of all, and by the way, Julie's Prius has actually been redesigned and apparently is pretty sleek and sporty. But I think that was a lib car. Well, the point really being that I think Toyota is in the driver's seat on hybrids. I think Toyota, as a global company, I happen to think the valuation is interesting, even though we know GM's cheap. I own GM. And so I believe that the story we have tonight is very good for GM. If you think about a company that's really been given zero credit for their internal combustion in the valuation, you really you're almost being punished by it.

18:00But I do like Toyota on the Would You Rather. On the Would You Rather, I'll go with Toyota as well. Phil came out with one of his reports, and they own the hybrid market. So if we think that's where the puck is going, you have to buy the stock. And the other ones, yes, they could bounce off at an incredible low. And getting back to Democrat, Republican, the Cybertruck would never. We should have asked him that. There's no way that's a liberal. I'm surprised Steve didn't Would You Rather Rather on that. That was a great time for him to introduce something else. I'm very good. My 20 years resolution, maybe.

18:29I'm going to do that, actually. I'm not playing your game. Now, if I told you in 2021 at the start of the year, we were looking at Tesla. OK, so that's how we were just talking about that three year ago period that the consensus was for 80 percent earnings growth, 50 percent revenue growth, 25 percent gross margins and volume growth of 80 percent. And flash forward three years in 2024, OK, to start that year, that the expectations were for 25 percent revenue growth, 22 percent earnings growth, 25 percent margins that have gone to 19 percent over that time period. OK, and volume growth that is only going to be 22 percent.

19:05Would you think the stock is going to be higher, lower or the same, which it is right now? I think we'd all say it would be much lower. Right. That would be a deterioration with everything you said. I think he does a masterful job of changing the narrative. And I think he's changed it now to charging. So I think now the charging could be a five billion dollar business and growing. But I agree with the way you said it. And in between, there was a robo taxi sort of. Right. So let's just say this. But let's just say if the charging thing doesn't materialize because the hybrid thing is more of a thing.

19:34And people who buy hybrids, I had one in 2006. It was fantastic. I know a lot of people who are opting for them, too, because if you live and you drive 30 miles locally or something like that, that's a great alternative. You still don't have to go to the gas station, but you have a full tank of gas unless you need to drive 200 miles or 300 miles or something like that. So to me, that narrative, Steve, could fall away very quickly, in my opinion, and if you have declining margins on the cars. Well, that also means that GM has more heavy lifting to do than the others, Julie. Yeah, absolutely. I think the problem that they have is that, you know, we take it for granted how easy it is to do this kind of switch off between the gas and the electric, but it's actually pretty complex.

20:13And, you know, I agree when it's a would-you-rather GM versus Toyota. I would much rather Toyota because not only do they have the experience branding these cars, but they actually know how to make them good cars. And I think that's been a challenge for a lot of the American players is they're not selling them as the, you know, sexy street rods that Tesla is. And they don't really have a positioning that helps them differentiate. They're just sort of these EVs that are kind of whatever. And so I think that's the real work that they have to do, GM has to do, is to create some product differentiation that gives people a reason to use them.

20:45And if they can't do it in EV, then they should do it in hybrid. Just curious, Tim, because initially when I posted Would You Rather, you said in this context, OK, those are the parameters. I understand them. If just given carte blanche. GM's the most discounted. And GM's been punished by their core business, which has never been run better. All right. Coming up, airlines taking flight. It's wheels up for this part of the travel trade, closing out the first week of the year. Is it time to book your ticket to ride? We'll debate that. Plus, Constellation Brands jumping after this morning's earnings report.

21:13how beer played a starring role in the stock's reaction when Fast Money rolls on. This is Fast Money with Melissa Lee, right here on CNBC.

21:30Welcome back to Fast Money. Constellation brands popping after an earnings beat. Stellar beer sales driving the success of the quarter, but their revenues did fall short. The company blaming an 8 % drop in wine sales for the Miss. Constellation warning that its wine segment will continue to face near-term headwinds. The company did slash its sales forecast for the fiscal year. How concerned should we be about this revenue, Miss? Recently, other consumer names like General Mills, Nike, they've reported some similar challenges. Are the stories too different? Well, if you look at the beer, wine, and spirits space, I think we've been concerned about it for a while.

22:04There was a period in which, especially coming out of COVID, that the luxury spirits brands were able to pass on all pricing. They had a lot of insulation from some of the dynamics around the consumer. They had the luxury factor of the Asia buyer and some of those places that didn't care. But I think it's real. But what you're seeing in these segments within these liquor companies, especially in Constellation, I mean, beer has been in consolidation for a long time. And the fact that it's moving into wine is interesting and that the spirits is actually maybe stabilized. And this is where they have some margin.

22:33I think Constellation is a fantastic investment. I think Diageo in the space is more interesting in terms of a performance. It's really underperformed. This Constellation chart, though, has been kind of a rock. Kudos to Guy who brought this up the other night when we were talking about cannabis. Yeah. It is amazing that Modelo is still the number one selling beer in the United States and that it's been able to hold on to those gains after the initial protests. Yeah, I think people switch and then they just stay pretty loyal to wherever they're going. But if you look at the stock, the Constellation, the stock was below all of its moving averages.

23:04It's popped above. But if you look at the 200-day moving average, which I believe is right around 240 or so, that's where you want to use that exit. I think if it fails. But I think the guidance, that was a big guide lower on net sales. They were looking for flat or sideways, and you go to 7%. So to your first question, I think it is something to worry about. But I think people are making it okay. Beer up, wind down, it's a zero-sum game. I think there's something to worry about there. I think with Ozempic and all the GLPs, I think that probably plays into it, too. I mean, speaking of games, we often play the game of if I told you the news, what would you guess the stock price would do?