The big bubble of 2021 is no more. But the big rally of 2020 remains, if redistributed. The prodigies of electric vehicles age quickly. Even with some new faces arriving, electrics are actually worth less today than they were at the end of 2020. Traditional automakers also sold last year. Because they haven’t been charged to the same degree, their decline has also been much softer. Old Auto is also now valued 23% higher than at the end of 2020.
On the electric side, Tesla went under and took all the mini Teslas with it. Plain old return to mean along with Elon Musk’s Twitter Inc. fiasco and dumping its own Tesla stock sank Big EV. But the drama obscured a more pernicious, if banal, development: Tesla’s urgent need to fuel demand and renew its product line, just like any old carmaker. Including plug-in hybrids, China’s BYD Co. Ltd. Tesla and became No. 1 in terms of EV units sold last year.
Yet Tesla still has the highest rating in the industry and, along with BYD, means that two of the top five by market capitalization are EV makers. The EV sector may have lost all of its gains, and more, since the end of 2020, but it remains six times larger than at the end of 2019. Electric models, including plug-in hybrids, accounted for a quarter of car sales in China last year , the largest market in the world. Preliminary data suggests that one in 10 cars sold worldwide was electric, up from one in 100 just five years earlier. Meanwhile, the old guard continues to target and invest in electrification of its own vehicles. Last year, the Lightning, the electrified version of the best-selling model in the US, Ford Motor Co.’s F-150 truck, was launched.
Overall, the automakers’ total market capitalization remains about 75% larger than at the end of 2019, and within that, traditional automakers are worth hundreds of billions of dollars more than at the end of 2020 after the first leg of the rally. While numbers have shrunk from the staggering heights of about a year ago, the industry remains basically priced for an electric vehicle revolution led by a group of (chastened) new entrants and a prosperous future for the traditional companies supposedly being driven out . And all at the end of a year in which global car sales appear to have fallen slightly.
Call it the fog of disruption. Warren Buffett once said it was easier to pick the losers of transportation revolutions than the winners. Musk’s aura may be dimmed, but he’s not counted out in any way; Tesla still trades at a 76% premium to the S&P 500 on forward price-to-earnings ratios. On the other hand, traditional automakers are still generating large profits from dominant internal combustion engine models and are beginning to catch up with electrified vehicles.
Another element of this dissonance has nothing to do with different powertrains. An anecdote: I recently took delivery of an electric vehicle, and several months later, one of my favorite things is that when I charge my phone on the built-in induction pad, the vehicle reminds me to pick it up when I park. It is clear that I am easily excited.
The point is, if an industry whose core business remains moving 90 million boxes-on-wheels a year is to live up to even the diminished valuation pop of recent years, user experience is the most likely path forward.
Technology on the inside, rather than on the bottom, was certainly a prominent theme at this month’s Consumer Electronics Show. For all the buzz now, electrification itself is likely to become very much a commodity over time, even if it undercuts the industry’s current go-to differentiator – other than price – engine power. Features like entertainment, driver assistance and, yes, phone charging reminders help brands keep some distance from each other. In fact, drivers may be willing to subscribe to such services, as is currently happening with Tesla’s Full Self-Driving Monthly Package or General Motors Co.’s OnStar.
Selling a box-on-wheels and then letting the driver pay you recurring fees for the privilege of making full use of it – the razor model with a steering wheel – is the holy grail. And there is no guarantee that drivers will go for it or, viewed another way, that the industry can provide services to justify the cost. Musk’s regular overselling of autonomous driving may have been the only way anyone even tried to rationalize Tesla’s $1 trillion-plus peak valuation. Growing skepticism that self-driving will happen soon, perhaps bolstered by lower expectations elsewhere in the industry, may also have contributed to Tesla’s sell-off.
Therein lies, despite gloating, an additional challenge for the traditional car manufacturers. As they try to disrupt themselves into a more electrified and smarter future, they may not have to justify the kind of insane appreciation Tesla received not so long ago. Yet they still need to convince investors that the industry can not only pull off the shift from gears and grease to charging and chips, but also make more money in the process — something Tesla’s recent price cuts are already messing with. Oddly enough, the Tesla setback that Old Auto quietly welcomes also serves to illustrate the challenge of its own transition.
More from Bloomberg’s opinion:
• Musk poured rocket fuel on Tesla’s stock market crash: Liam Denning
• Tesla, BYD Rivalry shows that not all EVs are created equal: Anjani Trivedi
• Sparks will fly in the electric car trade war: Lionel Laurent
This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.
Liam Denning is a Bloomberg Opinion columnist on energy and resources. A former investment banker, he was an editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’ Lex column.
More stories like this are available at bloomberg.com/opinion