Oil Prices Are Tumbling, But Global Electric Vehicles Will Be Just Fine, Says UBS
Investors are worried that weak oil prices could hurt the global electric car market, but UBS analysts say there is enough going to the sector to keep it well protected.
Weak oil prices are a nonissue for Tesla and other EVs, says UBS.
What does an oil-price correction mean for the electric-vehicle industry? Some investors are asking that question, with crude price down about 20% year-to-date amid a Saudi Arabia—Russia tussle over prices and coronavirus-demand fears.
Investors are worried that weak oil prices could undermine the advantages of electric vehicles over the gasoline-powered version, specifically in the U.S., according to UBS analysts Paul Gong, Patrick Hummel and Kohei Takahashi.
While lower oil prices could “undermine the comparative advantages” of EV over standard combustion cars, notably in the U.S., that may not be the case when it comes to the world’s two biggest EV markets — China and Europe.
For starters, gasoline prices in China are tied to global crude prices, but only within the $40 to $130 range and under $40 those drivers really don’t see gasoline much cheaper than around Rmb7/Liter ($1), said Hummel.
“Strategically, the Chinese government aims to develop a globally competitive auto industry in the EV era, and we believe continuous efficiency gain and cost cut along the EV supply chain is much more predictable than oil price fluctuations,” said the analysts.
UBS said the EV market has been weak after a subsidy cut in the middle of last year, but their data reveal a two-month backlog for Tesla, which has just entered the Chinese market.
As for Europe, the biggest driver of EV in the next two years will be carbon dioxide compliance that requires auto industry to lower CO2 emission to 95g in 2021 from more than 120g in 2019, said UBS. After a recent chat with German auto lobbyists, they cite a risk that the new EU commission will further lift those targets from -37.5% by 2030 to -50% to 55%. That is all in a bid for Europe to be CO2 neutral by 2050.
UBS recently raised its EV global sales forecast, driven by Europe growth.
“Our conviction remains unchanged in the multiyear migration to electric vehicles led by Europe and China,” the analysts said. Globally, they said the best-positioned are Tesla, Volkswagen, Toyota and some leading Chinese original equipment manufacturers like GAC and Geely.
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