Proactive Investors - Electric vehicle (EV) demand is likely to remain downtrodden as traditional carmakers enjoy a strong first quarter, Bank of America (NYSE:BAC) analysts have said.
“We expect traditional original equipment manufacturers to deliver another solid quarter while pure-play EV manufacturers are more challenged by soft demand,” a note read.
“This divergent trend should persist during the year,” analysts added.
Tesla Inc (NASDAQ:TSLA, ETR:TL0), which has already reported a rare sales drop for the quarter, could be in for a bumpy ride alongside Lucid Group Inc (NASDAQ:LCID) and Rivian Automotive Inc (NASDAQ:RIVN), therefore, with the question of demand very much in focus in upcoming updates.
That said, the sector as a whole is likely to face a slow start to the year as seasonal volumes normalise in line with historic trends, the bank forecast.
“We still expect margin improvement as companies deliver on productivity actions, more stable production and some tailwinds” though, analysts said.
General Motors Company (NYSE:NYSE:GM) and Ford Motor Company (NYSE:NYSE:F) are expected to enjoy a strong quarter of trading as a result, with attention likely to be on their mix of sales and hybrid vehicles’ performances in particular.
Indeed, “as EV demand stalled in the US market while hybrids took off,” Bank of America noted.
Concerns over flagging EV demand have been seeping through for a while, with Tesla Inc (NASDAQ:TSLA, ETR:TL0) having led an aggressive price war between competitors over the last year.
Further such incentives could continue to be used in the future, according to Bank of America, which also raised concern over Tesla’s growing inventory given Elon Musk’s firm does not distribute through a traditional dealer network.
“Since building a network to manage inventory requires time and meaningful capital, we think that at least in the short term Tesla will have to manage tightly,” analysts said.
“We see it unlikely that this level of mismatch between production and deliveries will be sustainable.”
Tesla was among EV manufacturers to see estimates trimmed by Bank of America as a result, ahead of an influx of earnings due from carmakers later in the month.