Fewer consumers plan to buy electric vehicles. Time to Sell Rivian and Tesla Shares?

While electric vehicle (EV) sales continue to grow, that growth has slowed significantly this year. US EV shipments rose 11% in the second quarter, which was a significant drop from the more than 50% EV growth seen in 2023.

Growth slowed further in Europe, with just 1% more deliveries in the first half of the year compared to a year ago. For the full year 2023, sales of electric vehicles in Europe increased by 16%.

Meanwhile, according to recent survey results, it doesn’t look like electric vehicle sales are going to pick up anytime soon.

Fewer people are planning to buy electric vehicles

According to a new survey by EY (Ernst Young), among US consumers looking to buy a new vehicle in the next two years, only 34% intended to buy an electric vehicle. This is down considerably from the 48% of respondents who said they planned to buy an electric vehicle in EY’s 2023 survey.

However, the EY survey uses a broad definition of electric vehicles, which also includes hybrids and plug-in hybrids (PHEVs). Looking at fully electric vehicles alone, the percentage of people planning to buy an electric vehicle has dropped from 22% a year ago to just 11%. Meanwhile, the number of car buyers planning to buy hybrids rose from 15% to 17%.

The biggest deterrents for consumers buying electric vehicles in the survey were expensive battery replacement (26%), limited range (24%) and lack of public charging stations (23%). Meanwhile, the survey noted a growing interest in hybrids, with respondents liking the security of being able to use petrol if needed.

The EY survey echoes similar results from a JD Power survey earlier this year. The JD Power survey found a decline in EV purchase intentions for the first time since it began in 2021, with 24% of new car buyers saying they were “very likely” to consider purchasing an electric vehicle, down from to 26% in 2023. Meanwhile, buyers who indicated they were “generally likely” to consider buying an electric vehicle fell from 61% to 58%.

The biggest concerns for car buyers regarding electric vehicles included the lack of public charging stations, higher purchase prices, driving range, charging times and the inability to charge the vehicles at home or at work.

Image source: Getty Images.

What to do with electric vehicle stocks?

With EV growth slowing, the question now is what to do with EV stocks. For electric vehicle companies outside of China, they definitely fall into a few camps.

In one camp it is adze (TSLA 0.74%)which is the established leader in the space. The company has a strong market share and is profitable. However, EV market share has declined due to introductions from both established automakers and new EVs. In addition, global sales of electric vehicles have started to decline.

For Q2, Tesla’s car deliveries fell 5%, while its auto revenue fell 7%. Tesla has other ventures outside of just electric vehicles, with robotaxis being one of the biggest opportunities for the company. However, the company lags behind Alphabetis Waymo, and there have been a lot of questions about the company’s self-driving technology recently.

In the second camp are traditional automakers trying to make inroads into the electric vehicle space. While a number of these companies are seeing their electric vehicle sales explode, such as I see and Hyundai/Kia, in many cases these sales come with steep losses. For example, in the first half of the year, Ford lost about $2.5 billion in electric vehicle sales, while Kia recently heavily discounted its new EV9 vehicle. The question is whether these boosts to the electric vehicle market are sustainable given the losses, especially as demand for electric vehicles slows. Ford began to look more into hybrids, while Toyota led with a hybrid strategy, successfully.

The third category includes upstart EV players such as Rivian (RIVN -1.51%) and The Lucid Group. Both are posting strong sales of their vehicles despite slowing global EV growth, but both also have negative gross margins, losing money on every vehicle they make even before corporate costs. Both also have partnerships with major automakers, which helps give them a runway to expand their businesses and lower production costs.

Right now, investing in electric vehicle stocks looks tough across the board. Toyota’s strategy of waiting patiently and then switching to hybrids as the market started to move in that direction looks like it will be the winning strategy. The company hasn’t invested heavily in electric vehicles and thus hasn’t racked up losses to the same extent as many other traditional automakers chasing the electric vehicle market. As such, it looks like one of the best options in the automotive space.

For pure EV companies, I’d pick Rivian as my favorite. It is a luxury brand that is gaining traction and approaching positive gross margins with strong support from Volkswagen and Amazon. That said, it’s still a very speculative piece.