Our Head of Global Autos & Shared Mobility Adam Jonas
discusses why the electric vehicle market may see a small reset
in 2025, but ultimately accelerate under a Trump Administration.
----- Transcript -----
Adam Jonas: Welcome to Thoughts on the
Market. I'm Adam Jonas, Morgan Stanley's Head of Global Autos and
Shared Mobility. Today, I'll be talking about the outlook for
U.S. automakers and electric vehicles.
It's Thursday, January 2nd at 1pm in New York.
With Trump's inauguration just around the corner, we've seen a
resurgence in many auto stocks tied to Internal Combustion
Engines, also known as ICE. While questions swirl around the
outlook for electric vehicles. In the near term we do think it'll
be a bumpy ride for the U.S. EV market. But looking toward the
second half of this year and beyond, we think there's hidden
value in the EV sector for a number of reasons.
First, let's look at the big picture. In our 2025 outlook for
U.S. auto sales, we anticipate demand of 16.3 million units, a
modest increase from the previous year, underpinned by projected
U.S. GDP growth of around 1.9 percent and lower policy interest
rates for auto loans. Looking specifically at EVs, we think the
trajectory will be first a dip, then a rip scenario. That is,
we're lowering our 2025 forecasts for U.S. EV penetration to 8.5
percent, down slightly from 9 percent previously. However, our
long-term outlook remains unchanged, and we continue to forecast
significant growth for EVs by 2040.
Now for the big question. What does a Trump administration mean
for EVs? Following the U.S. election, investors hopped on the
‘ICE is Nice’ trade based on the expectation that a Trump
administration will bring more relaxed U.S. emission standards,
reduced EV incentives, and finally increased tariffs – which
would drive up the costs of key EV components, such as batteries
and semiconductors, predominantly manufactured in Asia.
But the real story is more nuanced. You can't talk about EVs
without talking about Elon Musk, who will be leading Trump's
Department of Government Efficiency. And we struggle with the
idea that the incoming Trump administration working in close
partnership with Musk would structurally impede U.S.
participation in two of the most important industrial transitions
in over a century: electrification and embodied AI.
If the U.S. wants to be a leader in autonomy, it must ultimately
embrace EVs, which are the sockets of autonomous capability, and
expand its EV infrastructure. How long will the U.S. cling to the
soothing vibrations of its internal combustion fleet, while its
rivals in China solidify their dominance in software defined
electric mobility? Not for very long, in our opinion.
While a rolling back of incentives under Trump may make 2025 a
reset year for EV adoption, we view this mainly as a temporary
action to help support a more capable and sustainable crop of
domestic champions.
That takes us to a resurgence in U.S. onshoring. Bringing
manufacturing back to American soil has gained significant
momentum and is another factor influencing the long-term outlook;
not just for EV makers, but the entire supply chain. With the
U.S. light vehicle market predominantly ICE-based at 92 percent
of total sales, the real issue isn't the presence of gas powered
combustion engines, but the glaring lack of advanced onshore EV
production capabilities.
Again, this puts the U.S. at a disadvantage compared to its
global competitors and raises questions the Trump administration
will need to address. Just what type of manufacturing does the
U.S. want to prioritize? Are we looking to maintain the status
quo with ICE, or are we aiming to be at the forefront of EV
technology?
No doubt, the U.S. auto industry stands at a crossroads between
maintaining traditional technologies and embracing new,
potentially disruptive advancements in EV and AV sectors. The
decisions made in the next few years will likely dictate the pace
and direction of the U.S.'s role in the global automotive
landscape; and for investors, this brings new challenges – as
well as opportunities.
Thanks for listening. And if you enjoy the show, leave us a
review wherever you listen and share Thoughts on the Market with
a friend or colleague today.
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