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The Race to Develop Electric Vehicles and the Lessons from Tesla

Writer's picture: Virtus ProsperityVirtus Prosperity

Updated: Nov 13, 2024




Positive Signals for the Global Electric Vehicle Industry


Recently, the International Energy Agency (IEA) predicted that 2024 will be another favorable year for the global electric vehicle (EV) market, likely reaching its highest sales ever. While the European market is witnessing a slowdown in growth due to the end of many countries' EV price support policies, other major markets are showing strong growth potential. Global EV sales in Q1 2024 increased by 25% compared to the same period last year. This year promises to be a record growth year for the global EV industry, with sales expected to hit 17 million units, an increase of 3 million from 2023.


Vietnam's EV Industry and Bright Spots


Vietnam is not exempt from the global "race" in the EV market. Like many countries, Vietnam has implemented new policies to pave the way for EV development. Currently, the Ministry of Industry and Trade is working with the Ministry of Finance to research and propose amendments to regulations that would offer special consumption tax incentives for a period of 5 years to encourage the production and use of EVs in Vietnam. In recent years, the relatively stable and improving socio-economic conditions have made Vietnam a potential market for the development of both cars and electric vehicles. The Vietnam Automobile Manufacturers Association (VAMA) forecasts that Vietnam will reach 1 million electric vehicles by around 2028 and about 3.5 million by 2040.


Estimated Annual EV Sales in Vietnam


So far, there have been several specific directions from the government to boost the EV market in Vietnam, particularly through the Action Program on Green Energy Transition, Carbon Emission Reduction, and Methane Gas Emission Reduction in the transportation sector. This program aims to develop a green transportation system to achieve net zero greenhouse gas emissions by 2050. In the first phase, from 2020 to 2030, Vietnam will focus on producing, assembling, and promoting the use of EVs while improving charging infrastructure.




Estimated number of electric vehicle sales in Vietnam


In the second phase, from 2031 to 2050, Vietnam will gradually limit and eventually stop producing fossil fuel-powered vehicles. By 2050, the goal is for 100% of road vehicles and motorcycles to switch to electric or green energy. While gasoline-powered car production has been dominated by Japan and European countries, the EV sector presents an opportunity for new entrants like Vietnam due to the rapid growth in car demand and the country's proximity to potential markets and abundant resources.


Moreover, Vietnam's EV industry has had a strong start with VinFast, which plans to increase its annual production capacity from 250,000 vehicles to 1 million. VinFast could become a leading EV producer in the ASEAN region, with Indonesia likely to be a key foreign market for VinFast and other Vietnamese EV manufacturers. This indicates that the Vietnamese EV market still has many bright spots and growth opportunities, opening up a promising future for investors in this sector.


Tesla's Business Strategy


Tesla, with a market capitalization of $547 billion in 2024, is the seventh-largest company globally. Although this figure is only about half of its peak value of $1.06 trillion in 2021, it remains an attractive investment, with most investors seeing strong long-term growth potential. Tesla’s brand value was estimated at $76 billion in 2023, nearly double its valuation in 2022.


One aspect of Tesla’s flexible financial strategy is its ability to reduce capital investment needs, allowing the company to allocate resources more efficiently. Tesla has optimized its production processes, particularly at its gigafactories, reducing production costs per unit while increasing output. This optimization has enabled the company to grow without requiring excessive capital infusions. Additionally, Tesla maintains a cost-reduction strategy each year, leading to significant economic efficiencies and resource savings.


Tesla also leverages advanced technology, allowing over-the-air software updates that enhance vehicle features without the need for hardware upgrades. This approach reduces investment and maintenance costs while adding value for customers. By minimizing capital investment needs, Tesla can allocate resources more effectively, supporting its financial growth plans while maintaining flexibility.


In addition to its capital-raising strategy, Tesla is well-known for its revenue from selling carbon credits. This revenue stream has played a crucial role for Tesla. In its recent Q4 2023 and full-year reports, Tesla reported earnings of $433 million from this business, down 7% year-over-year from the $467 million earned in Q4 2023, as businesses increasingly met government emission standards. However, Tesla's total annual revenue from carbon credits in 2023 increased slightly to $1.79 billion from $1.78 billion, accounting for 3% of its total revenue.





The Intensifying Electric Vehicle Market


Despite reaching peak market share and record sales in 2020, Tesla's growth is slowing. A few years ago, Tesla was the dominant player in the EV market, with no brand comparable in technology, range per charge, supply chain, charging infrastructure, and product quality. However, in the past year, Chinese automakers have surpassed Tesla in the EV sector, prompting brands like Hyundai and Kia to invest heavily in EVs, offering increasingly affordable models that make EVs accessible to more people. In Tesla's global EV sales report for Q2 2024, the company saw a 4.8% year-over-year decline to just 444,000 units. From a pioneer, Tesla is now lagging behind the global trend.


For the first time in history, Tesla's EV market share in the U.S. has fallen below 50%. A recent report from Cox Automotive showed that Tesla's U.S. EV market share dropped below 50% in Q2 2024, despite national EV sales reaching record levels. This is further evidence that Elon Musk has been losing ground since Tesla introduced the Model S in 2012 and dominated the EV market for years. It shows that Elon Musk's empire is losing ground to GM, Ford, Hyundai, and Kia in the EV space.


The Future and Challenges for the Global EV Industry


From Tesla’s real-world example, it is evident that the EV trend has reshaped the structure of the automotive industry, with car manufacturers and supporting industries adjusting their strategies to align with the new trend. Both large and small car manufacturers are now entering the market, making the EV trend more promising than ever.


With the bright future of the EV trend, automakers have shifted their production structures, focusing on research and development of EV models. Volkswagen, VinFast, Mercedes, Ford, Audi, and 29 other car brands have planned to invest about $500 billion in the next 5 to 10 years to produce electric and hybrid vehicles. Vietnam also has potential to join this race, especially in Southeast Asia and Asia.

In the future, electric cars will not only be energy-efficient and reduce emissions but will also have the potential for autonomous driving, connecting with the streets and surrounding conditions through complex sensor systems. This marks the beginning of the development of self-driving electric vehicles.


However, the EV industry also faces challenges, such as the expiration of financial subsidies, limited mineral resources, the need to diversify consumer segments as demands become more complex, and the insufficiency of public charging infrastructure. Lithium, a vital resource for EV production, has sparked concerns among manufacturers due to supply chain crises. Additionally, economic recessions may play a role in reducing demand for transportation vehicles. Even a giant like Tesla reported an 8.5% decline in deliveries in Q1, marking the first drop after four years of strong growth.


Thus, the challenges and opportunities in the EV market pose a challenge for investors to keep up with market trends while promoting a globally electrified future amid the push for carbon emission reduction.


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