EV makers: will government support boost share prices?

Electric vehicle (EV) makers, including Nissan, Tata Motors and Tesla, are in the process of opening new centres that will benefit from a drive on the part of the UK and the US to boost domestic production. Tata is pushing for £500m in support from the British government. However, rising EV demand could cause labour and environmental problems.

- Tata Motors, Nissan and Tesla leveraging EV incentives in new production centres.

- Rising EV demand could lead to a technical skills gap in the UK by 2029.

- First Trust S-Network Future Vehicles & Technology ETF gains 21% year to date.

Electric vehicle (EV) manufacturers Tata Motors [TATAMOTORS.NS], Nissan [7201.T], and Tesla [TSLA] are seeking to benefit from governments’ efforts to boost EV production.

Tata, the owner of Jaguar Land Rover (JLR), is considering constructing a battery factory in south-west England. However, Spain is also under consideration, and Tata is pushing for a reported £500m in financial support in order to commit to the UK.

Losing the factory would have “seismic” implications for the UK’s standing in the global automobile industry, a person familiar with Tata’s request told the Financial Times.

Meanwhile, Nissan is looking to localise all of its US EV production within North America and make other changes to its manufacturing processes in the region in order to qualify for Inflation Reduction Act (IRA) subsidies on its US sales.

Similarly, Tesla’s plans to build an automobile plant in Monterrey were confirmed by Mexican president Andrés Manuel López Obrador on 28 February. The factory’s North American location will, like Nissan’s relocated production, qualify EVs produced there for IRA subsidies.

Tata shares are up 13.4% year-to-date, while Nissan’s are up 35.3%, and Tesla’s are up 57.3% over the same period.

Cost pressures

While demand for EVs is growing, all companies in the space are facing considerable pricing pressure and will look to leverage any government assistance they can.

Elon Musk vowed to cut Tesla’s production costs at its Investor Day on 1 March. While roughly halving its average selling price between 2017 and 2022, the carmaker improved margins from negative 14% to positive 17%. This was achieved “through introduction of lower cost models, build-out of localized, more-efficient factories, [and] vehicle cost reduction”.

Spain’s deployment of pandemic relief funds to incentivise EV production, as well as its status as an EU member, make it a promising site for Tata’s plant. But, with the factory set to produce batteries for JLR, a British institution, this would be a major loss of face for the UK government.

Nissan’s CEO Ashwani Gupta warned in early February that high energy bills and inflation made the UK an unattractive location for EV manufacturers while remarking that support for the EV transition was essential to keeping the country’s industry competitive.

Downsides of EV demand

Even as the world’s largest economies scramble to boost EV production and its largest carmakers respond to an uptick in demand, there are concerns that the increasing popularity of EVs could pose problems.

The Institute of the Motor Industry said in January that only 16% of British technicians are qualified to work on EVs, despite these accounting for 30.2% of the UK’s car production in 2022. The figures suggest a skill gap will continue to grow if measures aren’t taken to train new technicians. Currently, there would not be enough qualified technicians to service the UK’s total EV fleet by 2029.

Additionally, critics have long feared that EVs may be at least as environmentally damaging as the internal combustion engine vehicles they are replacing.

A Bloomberg investigation published on 27 February found that much of the aluminium in Ford’s [F] F-150 electric truck can be traced to a refinery causing significant environmental damage in the Amazon rainforest. Hydro Alunorte is subject to a class action lawsuit against its owner, Norsk Hydro ASA [NHYDY], on the part of locals who allege it has polluted local rivers and caused cancer, hair loss, and birth defects, among other side effects

Funds in focus: First Trust S-Network Future Vehicles & Technology ETF

Over the past 12 months, Nissan has been the top performer of the three EV producers, with its share price gaining 22.9%. Tata Motors gained 11.7% during this period, while Tesla slumped by 27.7%.

The First Trust S-Network Future Vehicles & Technology ETF [CARZ] holds all three companies as of 3 March. Tesla is its largest holding, with a 6.56% weighting. Nissan has a 0.56% weighting, while Tata Motors makes up 0.47% of the fund’s holdings.  CARZ also holds Ford at a weighting of 0.96%.

CARZ has gained 20.9% in the year to date and fallen 4.9% over the preceding 12 months.