Learn what is needed to make electric vehicles turn a profit.

The global auto industry is scrambling to meet carbon-emission mandates and, currently, EVs appear to be the solution of choice. Unfortunately, advances in battery technology and cost are not cooperating.

Cutting the cost of batteries is probably the industry’s most urgent challenge. Batteries are estimated to account for 35%-45% of EV total costs. Unless EV costs/prices fall, absent major incentives most consumers are likely to continue to opt for traditionally powered motor vehicles.

To date, EV sales in most jurisdictions have been supported by unsustainable incentives. Recognizing this, regulators have begun to shift away from incentives and are moving to mandates. Mandates require manufacturers to either meet specific fleet emission goals or to sell a specified number of EVs, regardless of consumer interest.

This could lead to very attractive pricing for EVs as manufacturers scramble to meet quotas. In effect, the cost of subsidizing EV sales has shifted from government (incentives) to manufacturers (lower prices).

Investors should be cognizant of an individual manufacturer’s sales mix. Taking a loss on a small number of EVs may be an acceptable price to pay for the ability to continue to market high-margin light trucks and SUVs.

From the Sigma Investment Counselors blog . Walter J. Kirchberger, CFA. Walter joined Sigma in 2003 and has more than 50 years of experience in security analysis, equity research and investment banking, including 12 years at National Bank of Detroit (now JPMorgan Chase) and 33 years at UBS AG/Paine Webber. Walter is a graduate of the University of Wisconsin with a degree in Economics. He earned the Chartered Financial Analyst (CFA®) designation in 1966 and has successfully completed the General Securities Representative Series 7 examination. Walter primarily serves as a research consultant and advisor to Sigma’s Investment Committee. Walter is a member of CFA® Institute, the CFA® Society of Detroit and serves on the Editorial Advisory and Securities Review Committees of the National Association of Investors magazine, BetterInvesting.

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