Shares in Tesla TSLA-4.79% and other car manufacturers fell on Monday. A disappointing forecast from automotive chipmaker ON Semiconductor ON-21.77% appeared to be the proximate cause.
ON Semi (ticker: ON) reported third-quarter financial results with revenues of $2.18 billion, compared to the $2.15 billion analysts were expecting. The problem is that management said fourth-quarter sales would be around $2 billion, short of the $2.2 billion Wall Street was looking for.
ON shares fell 22% on Monday, while the S&P 500 SPX1.20% and the Nasdaq Composite COMP1.16% were both up 1.2%.
Tesla (TSLA) shares fell 4.8% to close below $200 at $197.36 a share. Rivian Automotive RIVN-1.81% shares (RIVN) lost 1.8%. Ford Motor (F) shares fell 1.9%. General Motors (GM) shares gained 0.5% after the company and the United Auto Workers union reached a tentative labour agreement on Monday.
ON’s results are hitting car stocks because they suggest that EV sales are slowing. ON makes products that manage electricity, which is obviously key in a battery-powered car.
“Every new EV that is built is going to have almost 14 times more content just in the [traditional] drivetrain,” ON CEO Hassane El-Khoury said at an investor conference in September.
Investors may be wondering whether ON’s predictions are a chicken or an egg. Carmakers have been warning of weak EV demand for weeks, so it is possible that the chipmaker’s cautious call is the result.
Ford and GM have both recently postponed tens of billions of dollars of investment in EV production, citing the economy and slowing EV demand. Volkswagen (VOW.Germany) warned last week that orders for EVs were slowing. And Tesla shares fell 9.3% after CEO Elon Musk complained that high interest rates were hurting demand as the company reported its third-quarter figures.
Global EV sales continue to grow. Sales so far this year are around 30% to 40% higher than at this time in 2022. But while growth was closer to 50% a year ago, it now looks like the rate of increase could fall to 20% to 25%.
It’s irrelevant whether ON’s downbeat call is a function of the warnings from carmakers, or whether ON’s forecast signals more pain ahead for EV sales. Investors are worried.
“Expect the auto correction to deepen and play out over the next six months,” wrote New Street Research analyst Pierre Ferragu in a Monday report following ON’s earnings.
Japanese EV battery maker Panasonic (6752.Japan) didn’t help EV stocks either. On Monday, the company revised its sales forecast for fiscal 2024 to about 8.4 trillion yen, or about $56 billion, from a previous forecast of about $57 billion. Shares fell 2% in overseas trading.
The sales forecast for the company’s energy division, which includes batteries and other products, was cut by about 15% to about $5.9 billion. Panasonic blamed slowing demand for “high-end EVs” as well as weak consumer and industrial demand.
High-end EVs tend to have more expensive batteries. Automakers, including Tesla, have been shifting to lower-priced batteries to cut costs, exacerbating Panasonic’s problem.
Panasonic’s energy business accounts for about 10% of its sales.
What could turn things around? Lower interest rates would help, making all cars more affordable, but the Federal Reserve doesn’t seem inclined to cut borrowing costs any time soon.
But a change in government incentives to help the industry will take effect next year. The $7,500 tax credit now available to buyers of qualified EVs will be deducted from the price of the car at the dealership from 2024. Buyers won’t have to wait for their tax returns to see the benefit.
Through Monday’s trading, Tesla shares were down about 13% over the past 12 months, while Rivian shares were down about 55%. The S&P 500 was up about 8%.
