Today, The EV Bubble Has Burst. Tomorrow, It Will Reinflate

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Image: Nio

Electric car stocks are as wild as all the other ones, all the foam is vanishing out of car seats, and yet another coffin nail has been hammered into Peugeot’s North American return. All that and more in this Happy Friday edition of The Morning Shift for March 5, 2021.


1st Gear: You Can Fit So Much Volatility In This Bad Boy

Wall Street desperately wants every EV stock to be a thing, and some of them probably will be someday. But that day hasn’t come yet, as the sector is enduring a big slump that first touched off in mid-February. Tesla in particular slid by 4.9 percent on Thursday alone, and 30 percent since its peak in January. From Automotive News:

Tesla Inc. led this week’s drop in the auto sector that’s battered the holdings of funds focused on this part of the market. That’s painful for traders who poured almost $2 billion into electric car and battery-focused exchange-traded funds in 2021, according to Bloomberg Intelligence. Exchange traded fund assets in the segment had swelled to a record $4.6 billion before the selloff.

“Clearly electric vehicles are here to stay, but it’s less clear who the winners are going to be,” said Chris Grisanti, chief equity strategist at MAI Capital Management. “The market has been treating all these companies as if they are going to be winners, whereas we know that’s probably not going to be the case.”


Tesla dropped 4.9 percent on Thursday. Elon Musk’s company is still up more than 300 percent in the past year, even after the stock fell about 30 percent from its peak in late January.

Meanwhile, the surging investor interest in EVs has coincided with a boom in special purpose acquisition companies, or SPACs, which has led to the likes of Lucid Motors Inc. and Xos planning to go public through blank-check operations.

All that has stirred concern in some corners of the market that the sector may be over-heating.

While everyone was focused on GameStop, individual traders also boosted Chinese EV manufacturer Nio in the early weeks of the year. Nio’s shares sit at $39.28 at the time of writing — quite a ways below its $66.99 peak in the second week of January. The bubble is bursting. Next week it will be back up, I’m sure.

2nd Gear: We Must Do Something About The Infrastructure!

On Thursday, President Joe Biden convened with a group of Republicans and Democrats on the topic of spending trillions to reinvigorate U.S. infrastructure. The outcome of this meeting, based on Reuters’ reporting, is that everyone involved decided we Must Do Something. Sounds productive.

Biden, Vice President Kamala Harris and Transportation Secretary Pete Buttigieg met with House of Representatives members including Transportation and Infrastructure Committee Chairman Peter DeFazio, a Democrat, and congressman Sam Graves, the panel’s top Republican.

Biden said at the beginning of the meeting that he aimed for the United States to “once again lead the world across the board in infrastructure” and said doing so “makes us a hell of a lot more competitive around the world.” The White House has declined to say how much Biden will seek to spend on infrastructure or how he would pay for it.

DeFazio said after the meeting that Biden “wants to move as quickly as possible. He wants it to be very big and he feels that this is the key to the recovery package.”

Graves said the infrastructure plan must be bipartisan and that a funding mechanism was needed.

So, in case you had any impression that we had advanced at all beyond the gesturing broadly at the problem stage of fixing the problem, nah. But hey — now we at least all agree that Something Must Be Done.

3rd Gear: Maybe They Could Use Floam Instead?

It turns out semiconductors aren’t the only critical part automakers are having a hard time sourcing these days. Foam, too, is in short supply, as a consequence of the winter storm that swept through the South last month, putting the region’s oil refinery plants out of commission. Foam is manufactured from refinery byproducts. According to Automotive News:

An auto-industry executive who spoke with Crain’s Detroit Business on the condition of anonymity said some seating supplier assembly lines were expected to run out of foam by Monday.

“A lot of production is down still for oil refinery byproduct and in a few days no one is going to be able to make” propylene oxide, the executive said. “Everyone is scrambling. This problem is bigger and closer than the semiconductor issue.”

Others expect the impact of the foam shortage to hit sometime mid-month.

A North America-based purchasing executive with an automaker told Automotive News on Thursday morning that while the potential shortage is not an immediate issue for vehicle assembly plants, it may surface in a few weeks.

“It’s currently a threat, not a given,” the executive said. “The first impact is the second half of March. … I assume everyone is looking for alternative supplies globally.”


Most carmakers that Automotive News contacted for comment, including General Motors, Stellantis, Hyundai and Toyota, either say the shortage either hasn’t yet caused them to anticipate production stoppages, or that they’re merely monitoring the situation at this time.

4th Gear: U.S. Gov Wants Ford To Snub SK Batteries

The U.S. International Trade Commission wants to know why Ford is pursuing battery supply contracts with SK Innovation — a major South Korean battery manufacturer that the ITC believes stole trade secrets from rival LG Energy Solutions (formerly LG Chem).


The ITC has prohibited the import of SK batteries for 10 years in light of the trade secret discovery, though it notably is still permitting Ford to import battery components from SK for production within the U.S. for the next four years, exclusively for the F-150 EV. Which makes the government’s surprise at Ford’s continued relationship with SK a bit puzzling, to say the least. Per Reuters:

[The ITC] said Ford had sought business with SK even after a company employee in November 2019 was deposed in the commission’s investigation and at a time when it only had a contract with SK to supply batteries for the EV F-150.

“There is no explanation in the record why Ford would choose to ignore or excuse SK’s egregious misconduct,” the ITC added. “The fault here belongs with SK, as well as with those, like Ford, who deliberately chose to continue to cultivate prospective business relationships predicated on SK’s trade secret misappropriation.”

The ITC also rejected Ford’s request to extend exemptions to Ford’s unannounced new EVs.

“Ford’s basis for extending the exemption is to take advantage of economies of scope by using similar SK batteries with misappropriated technologies across several unnamed vehicles,” it said. “The commission finds the evidence concerning the public interest does not support Ford’s request.”

Ford declined to comment on Thursday, referring to its previous statement that the ITC decision supported its efforts to bring its EV Ford F-150 to market in mid-2022.


For what it’s worth, LG Energy Solutions has manufactured batteries that have resulted in the recall of tens of thousands of Chevrolet Bolt and Hyundai Kona Electric models around the world. And while there are certainly more than two companies that produce EV batteries, these two happen to be among the biggest players in the space right now. I’m not sure how the government expects automakers to drop SK overnight.

5th Gear: Architect Of Peugeot’s U.S. Return Goes To Alfa

Larry Dominique was supposed to bring Peugeot back to the U.S. after three decades of absence. It’s what he’d been working on for four years. But then the Stellantis merger happened, and suddenly nobody seems to really care whether Peugeot returns on our side of the pond. At least, not when the company has a raft of irrelevant brands to save already. Dominique recently switched over to Alfa Romeo North America, as Automotive News reports:

Dominique had been leading Peugeot’s planned return to the U.S. for four years. Part of his charge was to create a distribution channel that would shun expensive stores and emphasize the use of technology to offload some consumer-facing services such as scheduling vehicle delivery and pickup.

It’s unclear what the appointment means for Peugeot’s planned U.S. comeback.

That return was complicated by PSA’s December 2019 agreement to merge with FCA. And just before the completion of the merger two months ago, Tavares — the former PSA chief who now leads Stellantis — signaled that the plan could shift.

Dominique’s efforts have been praised by Tavares.

“This is something that, most probably, we are going to use, not specifically in the U.S. market, but maybe in another region of the world,” Tavares told Automotive News, referring to Dominique’s plan for an asset-light distribution model. “But I think that innovative thinking of that project has been very helpful.”


Reverse: The Great Los Angeles Auto Show Fire Of 1929

On March 5, 1929, a fire ravaged the Los Angeles Auto show, torching some 300 cars but thankfully injuring no spectators. An electrician and two firefighters were treated for burns. The cause was believed to be an electrical short, and the total value of the damage was pegged at $1.2 million — $18,356,631 in 2021 money. You can read more about it at The New York Times.


Neutral: Do You Have A Nickname For Your Car?

Technically, if I was going to call my orange Fiesta ST anything it would be Tails, given the color and the fact I have one of those perler-bead pixel art things hanging from the rearview mirror. But I never actually call it that. Before the Fiesta I had a red Dart and a blue Focus — you can guess what those were named. Do you nickname your cars and, if so, what do you call them?



2nd gear: So, in 2020, we spent $165 billion on highways in America. From 1956 to 1975, we spent $85 billion making the Eisenhower highway system. That would be $409 billion in 2020 dollars.

So, in 2020, we spent enough money to build from scratch, 1/4 of the interstates in this country in a single year. Under a tight-fisted administration that couldn’t do anything but annoy people on Twitter.

Look, I’m all for fixing the roads.   But it feels like we spend all our money on studies to determine how to fix them instead of just fixing them.