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Billions poured into electric-vehicle companies, but much more will be needed before the auto industry changes

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Wall Street and Silicon Valley poured billions of dollars into electric-vehicle and related companies in 2020, betting on their future dominance and in many cases fueling valuations that bear little relation to the companies’ current or expected production and sales.

There is little doubt that the automotive industry is trending toward electric vehicles amid the rise of Tesla Inc.
TSLA,
+2.05%
Declining prices and increasing availability of electric vehicles, or EVs; the potential for technology breakthroughs that offer a cheaper, longer-lasting, and faster-to-recharge battery; strides in EV infrastructure, and “green friendly” government initiatives taking root in the U.S. and elsewhere show the likely path.

And what once was an investment universe comprising solely Tesla and a smattering of fuel-cell companies has burgeoned into a subsector combining industrials, tech and transportation, with China as a major driving force both as EV makers’ base market and for EV demand. In total, at least $28 billion was invested in public and private electric-vehicle companies in 2020, according to data from CB Insights and Dow Jones Market Data Group.

Don’t miss: The explosion in electric-vehicle funding, valuation and trading in one chart

“The writing is on the wall with regard to the long-term EV versus internal combustion debate,” said John Mitchell, a partner at Blue Horizon Capital.

In several countries around the world, people will no longer be allowed to purchase internal combustion-engine vehicles within a short decade or two, and global auto makers have realized that “the transition to electrified vehicles is the only way to compete,” he said.

Not to be outdone, General Motors Co.
GM,
-2.23%,
Ford Motor Co.
F,
-1.27%
and other legacy auto makers amped investments in EVs and autonomous vehicles, with GM going as far as vowing to phase out internal combustion-engine vehicles within less than 15 years. Tesla, of course, joined the S&P 500 index
SPX,
+0.65%
in 2020 after finally showing consistent profit.
SPX,
+0.65%
New companies such as Nio Inc.
NIO,
-1.25%,
Nikola Corp.
NKLA,
+0.24%,
and Fisker Inc.
FSR,
-1.96%
attracted outsize investor attention, and the involvement of special-purpose acquisition companies became nearly common place.

“The EV party is just beginning, buckle the seat belts,” Wedbush analyst Dan Ives said recently. Recent weakness are short-term “growing pains,” he said.

That doesn’t mean that the switch from combustion engines to electric cars will take place quickly. Electric cars currently make up around 2% of global auto sales, and estimates for a future market share vary from a low-end forecast of 10% to 20% of cars sold by 2030 to as much as two-thirds of the market by that time.

Much more money will be needed to fund the switch, despite the billions that already found its way to EV-related investments. A recent note from B. of A. Securities put a price tag on a future EV “revolution,” saying that funding that change is still a “tremendous hurdle.”

Extrapolating from the relationship between Tesla’s capital raises and its capacity to make vehicles, the B. of A. analysts calculated that a shift to a 100% EV world would need more than $2.5 trillion in investments, coming from the companies, investors and governments across the world.

Recent capital raises by EV and related companies through the SPACs, or “blank-check” companies, “may be just a beginning,” they said.

‘Hyper growth’ in EV and renewables

The heightened interest in EV and related stocks has led to concerns about a bubble.

At a recent JPMorgan virtual investor conference, head of global research Joyce Chang and others told the audience that they were not seeing “a broad equity market bubble,” but that “certain pockets” of the market were experiencing “hyper growth, such as electric vehicles and renewables.”

Bubbles, of course, are easy to spot — in hindsight. It remains to be seen whether the current influx of money and attention to EV companies, as well as to autonomous vehicles and AV-adjacent companies, will resemble the short-lived notice paid to cloud-computing companies half a decade ago, or the early aughts’ spotlight on fuel-cell companies, several of which — 20 years later — have still not returned to record highs established then.

The Tesla bubble: Bets on electric cars and the rise of SPACs have led to a new version of the dot-com boom, columnist Therese Poletti writes

The JPMorgan analysts reminded the audience that EV, renewables and “innovation” stocks make up a small percentage of the broader equity market, with EVs only around 2% of the S&P 500.

Boding well for the future, however, Blue Horizon’s Mitchell pointed to the increasing quality and technical improvements for EVs.

“Battery life is only going to be extended and with the trillions being invested globally by all those supporting the electrification of the transportation system the infrastructure for widespread adoption and usage of EV technology is only going to increase,” he said.

Analysts at UBS forecast that global auto makers’ revenues from EVs are going to shift to $1.16 trillion by year 2030, from $182 billion today.

Conversely, revenue from ICE vehicles, at $1.77 trillion today, will dwindle to $1.07 trillion. Revenues for software will make an even bigger slice of that revenue pie by 2030, at nearly $2 trillion.

Here’s the UBS chart, in billions:

A company or a business plan?

Blank-check companies have been around for a long time, but took on a larger role in U.S. investing last year, when there were more initial public offerings through special-purpose acquisition companies than all other years combined, Garrett Nelson at CFRA said in a recent note.

Activity in 2021 is on track to exceed last year’s “by a wide margin,” and some of the largest SPAC deals are again likely to be in the “burgeoning electric and autonomous vehicle (EV/AV) space,” he said.

Some of the companies popping in “resemble business plans rather more than revenue- or profit-generating businesses,” but there’s reason for optimism, Nelson said.

The CFRA analyst singled out Fisker, Lucid Motors, which plans to go public via a SPAC merger with Churchill Capital Corp. IV
CCIV,
+7.17%
and privately held electric-truck maker Rivian as companies that are better positioned than others.

Tesla, of course, has established a first-mover advantage widely viewed as substantial.

The UBS analysts calculate that Tesla has a cost advantage around $1,000 to $2,000 per electric vehicle over other auto makers, although competition is increasing. Volkswagen AG’s
VOW,
+3.55%
MEB platform, the auto maker’s building block for its electric vehicles, is already “fully cost competitive” with Tesla.

VW, the No. 2 auto maker in the world, still lags behind in terms of battery costs, with Tesla likely to keep its price advantage in the battery space due to its vertical integration and technology advances, they said. Still, they see that large legacy auto makers such as VW would be able to reach an EV manufacturing cost and margin parity in four years.

EVs, not AVs, could be the real game-changer

Related to investor’s inflows to electric-vehicle makers is the interest generated by lidar, batteries, sensors and other components hailed as key to autonomous vehicles.

Full autonomy has been proven to be a stubborn and costly problem to solve, with regulatory and technological hurdles aplenty.

Despite lofty goals, most cars on the road today offer advanced driver-assistance systems that are not dramatically different from previous years’ systems and still far from being the game-changer they are expected to be for lives and economies in a not-so-distant future.

For now, auto makers are mostly focusing on partial autonomy and ADAS offerings that can be commercialized in the short term, with EVs pulling ahead in terms of consumer interest and regulatory push.

“EVs are simply a better product,” Blue Horizon’s Mitchell said.

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Business

Electric Vehicles Are the U.S. Auto Industry’s Future—If Dealers Can Figure Out How to Sell Them

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Car dealer Brad Sowers is spending money to prepare for the coming wave of new electric models from General Motors Co. He is installing charging stations, upgrading service bays and retraining staff at his St. Louis-area dealership to handle the technology-packed vehicles.

But when he considers how many plug-in Chevy Bolts he sold last year—nine, out of the nearly 4,000 Chevrolets sold at his Missouri dealerships—it gives him pause.

“The consumer in the middle of America just isn’t there yet,” when it comes to switching to electric vehicles, he said, citing the long distances many of his customers drive daily and a lack of charging infrastructure outside major cities.

As auto executives and investors buzz about the coming age of the electric car, many dealers say they are struggling to square that enthusiasm with the reality today on new-car sales lots, where last year battery-powered vehicles made up fewer than 2% of U.S. auto sales.

Most consumers who come to showrooms aren’t shopping for electric cars, and with gasoline prices relatively low, even hybrid models can be a tough sell, dealers and industry analysts say.

Auto makers are moving aggressively to expand their electric-vehicle offerings with dozens of new models set to arrive in coming years. Some like GM are setting firm targets for when they plan to phase out gas-powered cars entirely.

Sales consultant Robert Mason Jr., center, spoke with Paul Sweeney, left, and his son, Jeff, who were purchasing a Chevrolet Trail Boss at Jim Butler Chevrolet in Fenton, Mo., on Friday.

Many dealers say that puts them in a delicate spot: They are trying to adjust, but unsure whether and how fast customers will actually make the switch. About 180 GM dealers, or roughly 20%, have decided to give up their Cadillac franchises rather than invest in costly upgrades that GM has required to sell electric cars.

A GM spokesman said the company expected some Cadillac dealers to opt out and is pleased that the roughly 700 remaining share its all-electric goals.

Past attempts by car companies to expand electric-car sales have largely flopped, saddling retailers with unsold inventory. Even now, some dealers say they are reluctant to stock electric models en masse.

“The biggest challenge is that dealers have a bit of ‘boy who cried wolf’ syndrome,” said Massachusetts dealer Chris Lemley.

Car companies have promised for years to make electric cars mainstream, but produced only low-volume, niche models, he said. He recalls

Ford Motor Co.

rolling out an all-electric Focus that sold poorly and stacked up on his lot. It was discontinued in 2018.

“So when we are told, ‘This time, we really mean it,’ it’s easy to be skeptical,” Mr. Lemley added.

Some shoppers also are unsure. Joe Daniel, an energy analyst at the Union of Concerned Scientists, said he was determined to buy an electric car, but eventually abandoned his effort after realizing there weren’t enough public charging stations near his apartment in Washington, D.C. Without a place to plug in, the purchase made little sense, he added.

“For EVs to take off, they need to be as convenient as gas-powered cars—that’s the whole point of this big purchase,” Mr. Daniel said.

Gone are the long waits at charging stations: Chinese electric-vehicle startup NIO is pioneering battery-swap systems, challenging Tesla and other rival car makers. Here’s how NIO and Tesla are racing for the world’s largest EV market in China. Photo illustration: Sharon Shi

To solve problems like this, President Biden has said he wants to spend billions of dollars to upgrade the country’s charging infrastructure as part of a push to incentivize battery-powered cars.

Ford, GM and other major car companies say they are confident in their new electric-vehicle offerings and are training dealers to sell and service them.

Still, some auto retailers say they worry about the long-term implications for their business.

Tesla Inc.’s

influence on the electric-car market has created a new standard for car shoppers, offering an online transaction and a simplified lineup with no price negotiation. Other electric-vehicle startups, like Rivian Automotive and Lucid Motors, say they’ll likewise sell directly to consumers and bypass traditional dealerships.

Some car companies are now following their lead, initially stocking dealership lots with few if any electric models and allowing customers to order more directly from the manufacturer.

Volvo Cars CEO

Håkan Samuelsson

recently said that all future battery-electric vehicles would be sold exclusively online and the price would be set centrally, eliminating the ability to haggle. Dealerships will help deliver vehicles to customers and perform other services, like maintenance, he said.

“The marketplace is moving from the physical dealership to online. That’s what will happen in the next 10 years,” Mr. Samuelsson said.

Howard Drake,

a GM dealer in Los Angeles, said he is considering converting two of his showrooms. Rather than separate models by brand, he is considering two stores—one for electrics, the other for gas-powered vehicles.

SHARE YOUR THOUGHTS

Do you or someone you know drive an electric vehicle? What’s been your experience? Join the conversation below.

“These are really different customers,” Mr. Drake said. “A Hummer EV buyer probably doesn’t want to be sitting next to some guy buying a gas-guzzling pickup truck.”

Mr. Sowers said he sees encouraging signs. GM recently dropped the sticker price of the all-electric Bolt and helped boost sales for the model in February. But he said his electric-vehicle inventory will remain light because he is uncertain about longer-term demand.

“It’s still very early days,” Mr. Sowers said.

As soon as dealers figure out how to sell EVs, another business problem awaits in the service bay.

Troy Carrico worked on a Chevrolet Corvette.

Electric vehicles typically have fewer mechanical parts and don’t require the same type of service that gas engine cars need, such as oil changes. That work right now is a big profit center for dealerships.

“There’s going to be an impact, but it might take three or four years to see the full effect,” Mr. Lemley said.  “That’s really my biggest question mark heading into all of this.”

—William Boston contributed to this article.

Write to Nora Naughton at Nora.Naughton@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Cathie Wood’s ARK Investment Faces Reckoning as Tech Trade Stalls

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ARK Investment Management LLC’s winning bets on disruptive technology companies cemented

Cathie Wood’s

status as Wall Street’s hottest fund manager since Peter Lynch or Bill Gross.

Now, those gambits threaten to make ARK a high-profile casualty of the recent shift in investor sentiment away from tech stocks and toward cyclical shares tied to an economic upswing.

ARK runs five exchange-traded funds that actively invest in companies Ms. Wood and her team of portfolio managers believe will change the world through what they call “disruptive innovation.” Among the ETFs’ biggest holdings are electric car maker

Tesla Inc.,

payments company

Square Inc.

and streaming media firm

Roku Inc.

The stock prices of those three companies have surged at least 195% in the year since the Covid-19 pandemic upended the investing landscape—helping ARK’s funds more than double over the same period. But the stocks dropped more than 12% last week amid a broader selloff in fast-growing tech stocks, a slump many attribute to a sharp rise in government bond yields.

They have badly underperformed the tech-heavy Nasdaq Composite Index, which dropped 4.9% last week.

Worries about a rising interest-rate environment have posed a test for ARK, exposing the vulnerabilities of its investment approach. Higher yields generally make growth stocks, including shares of big tech companies, less attractive. Plus, some of ARK’s positions are in small, illiquid stocks that have the potential to swing dramatically.

The ETFs suffered double-digit percentage decreases last week, their biggest routs since the stock market’s plunge last March, according to FactSet. Further declines among growth stocks on Tuesday and Wednesday drove even deeper drops among ARK’s funds, bringing the declines for its flagship ARK Innovation ETF to 14% over the past month.

The cascade of red has proved hard for many investors to stomach. ARK’s funds collectively lost more than $1.8 billion between Feb. 24 and Monday, their biggest stretch of outflows ever, according to FactSet. Together, they managed roughly $51 billion at the end of February, making ARK the ninth-largest ETF operator. That’s after attracting $36.5 billion in assets over the past year, more than

Invesco Ltd.

,

Charles Schwab Corp.

and First Trust—the fourth, fifth and sixth biggest ETF issuers in the U.S., according to Morningstar Direct.

But the recent outflows triggered sales across ARK’s funds to meet redemptions, while the firm also opted to dump shares of its easier-to-trade holdings, including

Apple Inc.

and

Snap Inc.,

to load up on favorites like Tesla.

With tech stocks continuing to fall, ETF analysts and traders worry that a combination of broad market declines and additional outflows could create a snowball effect across ARK’s portfolio. That could potentially cause some of its more illiquid, small-cap holdings to trade sharply lower.

Tom Staudt, ARK’s chief operating officer, dismissed concerns of any liquidity problems and said ARK’s ETFs have continued to perform as any other ETF would during the tumult.

Still, it has been a rough patch for ARK and its star stock picker, Ms. Wood.

“What a crazy week or two we’ve had here,” Ms. Wood said in a YouTube video posted Friday that was viewed by nearly 600,000 people.

Ms. Wood founded ARK in 2014 and now serves as its chief executive and chief investment officer following a 12-year stint at AllianceBernstein. Her funds’ eye-catching performance, coupled with her willingness to engage investors through social media, podcasts and videos, has earned her a variety of endearing monikers from individual investors and Reddit’s day traders, including “Mamma Cathie,” “Aunt Cathie” and, in South Korea, “Money Tree.”

“ARK’s funds fit 2020’s narrative of secular growth, but we’re now seeing a shift in that,” said Steven DeSanctis, an equities analyst at Jefferies. “It probably won’t be the last time in the near term she sees outflows,” Mr. DeSanctis added, referring to Ms. Wood.

Outside of last week’s pullback, ARK’s returns have been the envy of the asset-management industry, reviving some investors’ belief in stock pickers after more than a decade of dominance by index-tracking funds. The ARK Innovation ETF has logged an average annual return of 36% since it started trading in 2014. That compares with the S&P 500’s average return of 11% over the past 10 years.

“There’s been lots of calls with clients over the last six months as the funds gained assets, and the primary conversation has been about what happens when the funds are no longer a hot topic,” said William Kartholl, director and head of ETF trading at Cowen.

Mr. Staudt said ARK has a soft limit of about 10% on any one stock within its funds. Tesla’s stock sits at that level in ARK’s innovation and autonomous funds, as does Square in ARK’s fintech innovation pool. As for ARK’s exposure to smaller stocks, Mr. Staudt said those worries are overblown and pointed to the fact that about 15% of ARK’s innovation fund is invested in stocks with market caps below $5 billion.

If anything, the volatility has created “attractive buying opportunities” for ARK, Mr. Staudt added.

SHARE YOUR THOUGHTS

Do you think ARK’s funds will remain susceptible to further losses and outflows? Why or why not? Join the conversation below.

ARK loaded up on more shares of Tesla,

Teladoc Health Inc.

and Square during last week’s selloff, according to ARK’s daily trading logs. It also added more shares of

Zoom Video Communications Inc.

to one of its funds earlier this week.

Amid the redemptions across ARK’s funds, the firm also sold shares in some of its more widely traded liquid stocks. The firm cut its positions in Apple and Snap last week and sold all its remaining shares in

Salesforce.com Inc.,

he added. ARK also sold shares of

Facebook Inc.,

Bristol-Myers Squibb Co. and

Roche Holding AG

this week.

“It’s almost like having dry powder in the portfolio,” said Mr. Staudt, referring to how the funds basically build up a cash-like reserve to buy other stocks.

Not all investors are fazed by ARK’s bigfooted approach to investing. Flows into ARK’s innovation fund turned positive Tuesday, pulling in $464.3 million, according to FactSet.

But ARK’s most recent stumble continued to shake out others.

Paolo Campisi, a 31-year-old entrepreneur in Toronto, bought shares of ARK’s innovation fund in early February but sold his stake last week after shares dropped more than 10%. He decided to take a riskier bet on an eventual rebound by buying out-of-the money call options that expire at the end of the month. But he sold those options as well Wednesday when ARK’s flagship fund fell an additional 6.3%.

“I think everyone’s going to be challenged moving forward,” Mr. Campisi said, adding that he is unsure at what level he’d consider buying back into the fund again. “And the level of scrutiny on someone like Cathie [Wood] is going to be high.”

What You Need to Know About Investing

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

A tangled market web of Tesla-bitcoin-ARK Investment could spell trouble for investors, warns strategist

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Tuesday is shaping up to be a tough one for technology stocks, after a selloff greeted investors to start the week.

The Nasdaq Composite
COMP,
-2.03%
— up 40% over the past 12 months — tumbled 2.5% on Monday over concerns rising bond yields could make those tech stocks look pricey. When so-called “risk-free” yields are climbing, it is that much tougher to justify equity valuations that seem lofty.

Leading techs lower in premarket is electric-car maker Tesla
TSLA,
-5.41%,
down 6% after a roughly 8% drop on Monday. Our call of the day comes from Saxo Bank’s head of equity strategy, Peter Garnry, who has been warning clients that Tesla is tangled up in a “risk cluster” that involves bitcoin and Cathie Wood’s ARK Investment Management firm.

Tesla announced a $1.5 billion bitcoin investment earlier this month. Along with Tesla weakness, bitcoin was down 10% early Tuesday, which some attributed to criticism from Treasury Secretary Janet Yellen (see below). That crypto drop will “obviously illustrate the earnings volatility that Elon Musk has delivered to Tesla,” said Garnry.

Read: Tesla bitcoin gambit already made $1 billion, more than 2020 profit from car sales, estimates analyst

Meanwhile, Tesla “is also the biggest position across all ARK Invest ETFs which added pressure to its biggest fund the ARK Disruptive Innovation Fund
ARKK,
-6.11%
losing 6% yesterday. This is exactly the risk cluster that we have been worrying about and wrote about two weeks ago,” said the strategist.

Read: Stocks aren’t in a bubble, but here’s what is, according to fund manager Cathie Wood

In the Saxo note that deep-dived into the hugely popular, actively managed fund’s holdings, Garnry highlighted ARK’s concentration in biotech names that he said could be risky if the market decides to reverse. And Tesla shares represents 6.7% of total assets under management across ARK’s five actively managed ETFs, according to the data Saxo crunched two weeks ago.

“What it means is, that a correction in equities for whatever reasons, could be higher interest rates or prolonged COVID-19 lockdowns, could set in motion selloffs across either biotechnology stocks or Tesla shares and cause performance to deteriorate which could start net outflow of AUM and then the feedback loop has started,” said Garnry, at the time.

For her part, Wood, the chief executive of ARK Invest and manager of the popular ARK Innovation exchange-traded fund, last week said she was surprised by how fast companies are adopting bitcoin, and that her “confidence in Tesla has grown.”

The markets

Stocks
DJIA,
-0.43%

SPX,
-0.78%

COMP,
-2.03%
are selling off, led by techs, with European stocks
SXXP,
-0.49%
sinking apart from some travel stocks. Asian markets had a mixed day
000300,
-0.32%.
Oil prices
CL00,
-0.19%
are rising, while the closely watched yield on the 10-year Treasury note
TMUBMUSD10Y,
1.360%
is trading at around 1.35%.

The chart

Treasury Secretary Yellen may have let some steam out of bitcoin
BTCUSD,
-13.19%
after repeating some concerns about the cryptocurrency in an interview with the New York Times’ Dealbook. Bitcoin was last down 13% to $48,886, taking a bunch of other cryptos down with it.

The buzz

All eyes on Federal Reserve Chair Jerome Powell, who is kicking off two-day testimony on Capitol Hill. With more than 10 million Americans still jobless, “Mr. Powell will go out of his way, I am sure, to put tapering to bed and rightly so, as I dread to think what a taper-tantrum of the 2020s will look like,” said Jeffrey Halley, senior market analyst, Asia Pacific, Oanda.

We’ll also get the latest home-price indexes from S&P CoreLogic Case-Shiller and the Federal Housing Finance Agency, along with an update on consumer confidence.

Shares of home-improvement retailer Home Depot
HD,
-4.49%
are dropping despite upbeat results.

Shares of special-purpose acquisition company Churchill Capital
CCIV,
-31.65%,
also known as a blank-check company, are sinking. After weeks of rumors, Churchill finally announced a deal to buy electric-vehicle company Lucid Motors.

Mourning 500,000-plus American lives lost to COVID-19, President Joe Biden observed a moment of silence late on Monday and urged the public to “mask up.”

Social-media group Facebook
FB,
+0.83%
says it will restore links to news articles in Australia, five days after proposed media law changes in the country.

Random read

“I can mouth obscenities at people and they don’t have a clue.” Redditors on pandemic positives.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

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Business

Tesla Inc. stock underperforms Friday when compared to competitors

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Shares of Tesla Inc.
TSLA,
-0.77%
shed 0.77% to $781.30 Friday, on what proved to be an all-around positive trading session for the stock market, with the NASDAQ Composite Index
COMP,
+0.07%
rising 0.07% to 13,874.46 and the Dow Jones Industrial Average
DJIA,
+0.00%
rising 0.00% to 31,494.32. This was the stock’s second consecutive day of losses. Tesla Inc. closed $119.10 below its 52-week high ($900.40), which the company achieved on January 25th.

The stock underperformed when compared to some of its competitors Friday, as Toyota Motor Corp. ADR
TM,
+0.07%
rose 0.07% to $153.55, General Motors Co.
GM,
+0.79%
rose 0.79% to $52.57, and Honda Motor Co. Ltd. ADR
HMC,
-0.73%
fell 0.73% to $28.49. Trading volume (18.8 M) remained 20.6 million below its 50-day average volume of 39.4 M.


Editor’s Note: This story was auto-generated by Automated Insights using data from Dow Jones and FactSet. See our market data terms of use.

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Business

Bitcoin blows past $45,000 and reaches as high as $48,000, driven by Tesla’s investment

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The price of bitcoin reached as high as $48,000 on Tuesday, building on gains following news that electric-car maker Tesla has invested $1.5 billion in the cryptocurrency and may accept it as future payment for products.

After reaching a record of near $44,000 on Monday, bitcoin prices
BTCUSD,
+2.48%
hit $45,000, $46,000 and $47,000 later that evening, according to CoinDesk. Prices reached a high of $48,226 early Tuesday and have since pulled back to $46,450, according to CoinDesk.

Sparking the fresh surge for bitcoin was a Tesla
TSLA,
+1.31%
regulatory filing with the Securities and Exchange Commission on Monday. It revealed Tesla acquired $1.5 billion in bitcoins in January and plans to accept it “as a form of payment for our products in the near future, subject to applicable laws and initially on a limited basis, which we may or may not liquidate upon receipt.” 

Read: Musk’s Tesla says it invested $1.5 billion in bitcoin, sending the cryptocurrency to record levels near $44,000

That’s as Musk has been recently voicing support for cryptocurrencies on his Twitter account.

For the bitcoin faithful, it was a monumental move by a big company to invest in the digital currency and allow payments. But on the other side, some analysts questioned Tesla’s move, given the volatility of the cryptocurrency, as well as share prices of the electric car maker.

Even if bitcoin’s price multiplied by five over the past year, it could still come crashing down, Ipek Ozkardeskaya, senior analyst at Swissquote, told clients in a note. “The high volatility in Bitcoin’s value will therefore inevitably inject a certain volatility in Tesla’s revenue, and decrease the predictability of the company’s performance.”

Bitcoin’s year-to-date gain is up more than 60% in 2021. That’s against a 4% rise for the S&P 500
SPX,
+0.74%
and an 8.5% gain for the Nasdaq Composite Index
COMP,
+0.95%,
while gold
GC00,
+0.47%
is down around 3% and crude oil prices
CL.1,
+0.17%
are up 20%.

Read: Should I buy dogecoin? Why prices of the cryptocurrency are surging — but risky

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Business

Tesla is in decline, SUVs are king, and more insights from the world’s largest electric-vehicle market

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Europe overtook China in 2020 to become the world’s largest market for electric vehicles, amid a pedal-to-the-metal push to increase EV adoption from governments and supercharged demand from consumers.

The registrations of new electric vehicles topped 1.33 million in the key European markets last year, compared with 1.25 million in China, according to a report based on public data by automotive analyst Matthias Schmidt.

The 18 markets include the European Union states — minus 13 countries in Central and Eastern Europe — as well as the U.K., Norway, Iceland, and Switzerland.

And growth will only continue, according to Schmidt, who publishes the European Electric Car Report. He projects that electric vehicles’ share of the European car market will rise from 12.4% in 2020 to 15.5% in 2021 — that is 1.91 million vehicles out of a total of 12.3 million, and an increase of 572,000 from 2020.

Key trends have emerged as Europe races to become the most important region for EVs, highlighted in the report that Schmidt shared with MarketWatch.

Among them are that the Renault Zoe is now the most popular electric vehicle in Europe, overtaking Tesla’s Model 3, which took the top spot in 2019. In fact, Tesla’s success in Europe has declined across the board over the last year, with the U.S. company delivering 97,791 cars across the continent in 2020, down from 109,467 in 2019.

Here’s what you should know:

SUVs are leading the growth

When you think of environmentally-friendly vehicles, sport-utility vehicles and crossovers probably don’t spring to mind. But this class is by far the most popular type of battery-electric vehicle in Europe, representing 27% of all registrations in 2020 and 29% in December alone.

Hyundai
005380,
+0.42%
and Kia
000270,
-1.22%
led the pack, making up 39% of battery-electric SUV and crossover volumes in 2020.

SUVs and crossovers are even more popular with hybrid buyers — accounting for 53% of plug-in hybrid electric-vehicle volumes last year.

Luxury buyers prefer hybrids

When it comes to hybrids, better is best. Premium brands made up 58% of all plug-in hybrid electric-vehicles in 2020.

Many of those cars were supplied by the German automotive giants: Volkswagen Group
VOW,
-0.40%,
which owns Audi and Porsche, Mercedes-Benz owner Daimler
DAI,
+0.46%,
and BMW
BMW,
-0.19%.

There is a coming wave from China

As Chinese car makers increase efforts to meet market demand at home and abroad, they are looking at Europe.

The volume of electric vehicles in Europe that were made by Chinese companies grew 1290% from 2019 to 2020, to 23,800 units. Much of that momentum came only recently — half of those cars arrived in the final three months of the year.

As Europeans scrambled to buy electric vehicles, the flow of cars from China also included Teslas. In December, 20% of all Tesla
TSLA,
+5.83%
models registered in Austria were manufactured in China.

Also read: Audi is betting on the luxury market in a new electric-vehicle venture with China’s oldest car maker

Government action is speeding up EV adoption

European car makers are being pushed to manufacture more electric vehicles by the threat of hundreds of millions of euros in fines from the European Union over binding emissions targets. 

Phased in through 2020, and continuing into 2021, the fleetwide average emission target for new cars must be 95 grams carbon dioxide per kilometer, which is around 4.1 liters of gasoline per 100 kilometers.

In the wake of the post-Brexit trading agreement, the U.K. government said that the country’s car makers face emissions targets “at least as ambitious” as in the EU.

EV adoption is being pushed on both sides of the market, with governments stimulating demand by providing generous incentives for buyers to trade in their gas guzzlers.

In Germany, buyers can save up to €9,000 ($10,940) on purchases of new electric vehicles. France offered incentives of up to €7,000 in 2020, but will trim that down to €6,000 in 2021. 

Regulation could hurt some bottom lines in the short-term

Volkswagen Group confirmed last week that it had not met the EU’s emissions targets for 2020, meaning that the company is on the hook for more than €100 million in fines.

Others could face the same fate, though rivals Daimler, BMW, Renault
RNO,
-0.58%,
and Peugeot (now part of Stellantis
STLA,
+1.05%
) all say they met their targets.

“Despite very ambitious efforts in electrification, it has not been possible to meet the set fleet target in full. But Volkswagen is clearly well on its way,” said Rebecca Harms, a member of the independent Volkswagen Sustainability Council.

“The key to success will be to give a greater role to smaller, efficient and affordable models in the electrification rollout.”

It is unclear how easy that will be in 2021. The COVID-19 pandemic contributed to the fewest passenger-car registrations in Europe since 1985 and, according to Schmidt, this allowed a number of car makers to meet emissions targets.

Also read: Car makers put the pedal to the metal on electric vehicles in 2020, with sales surging in one key region where Tesla lost market share

Tesla is losing dominance

Tesla comfortably topped the European EV charts in 2019. It delivered more than 109,000 vehicles that year, making up 31% of the region’s battery electric-vehicle market. 

But the tide turned in 2020, with Tesla dropping behind both the brands of Volkswagen Group, which had 24% market share, and the Renault–Nissan–Mitsubishi Alliance, with 19% market share. Last year, Tesla delivered nearly 98,000 vehicles and made up just 13% of the European market.

According to Schmidt, it was the introduction of emissions targets, and the specter of massive fines, that has accelerated European car makers’ battle against Tesla for dominance.

See also: Electric-car sales jump to record 54% market share in Norway in 2020 but Tesla loses top spot

“With 2021 getting even tougher — thanks to the phase-in year ending — Tesla will come under even more intense competition,” Schmidt said. “Come 2025 when the targets increase again, Tesla will certainly be playing against fully-fit opponents and will potentially struggle.”

However, Schmidt does note in his market outlook for 2021 that the opening of Tesla’s factory in Germany, expected to start production in the second half, is likely to double regional volumes next year.



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Business

Apple, Tesla and Facebook ready to report record sales in busiest week of earnings

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U.S. companies have barely managed to eke out positive earnings growth so far in this quarterly results season, but the big test arrives in the week ahead.

Nearly a quarter of the S&P 500
SPX,
-0.30%
is set to report results, with those companies representing 39% of the index by market value, according to calculations based on FactSet data. Given that the S&P 500 is weighted by market capitalization, this roster of companies will have an outsize impact on the profit trajectory for the index.

Earnings are expected to decline for the fourth consecutive quarter once all results are in for the latest period, but those companies that have reported thus far have been beating expectations in aggregate.

The FactSet consensus now models a 5% earnings decline for the index, compared with the 6.3% drop projected a week ago. If profit growth for the S&P 500 ultimately ends up positive, it would mark an end to the current earnings recession, which takes place when corporate profits drop for two or more consecutive quarters.

Apple Inc.
AAPL,
+1.61%
and Facebook Inc.
FB,
+0.60%
are among the highlights of next week’s slate, along with Tesla Inc.
TSLA,
+0.20%,
which will deliver results for the first time since it became a member of the S&P 500. All three high-profile companies are scheduled to report Wednesday afternoon and expected to have produced record revenue in the holiday quarter.

The holiday quarter is always crucial for Apple, which releases new iPhones in the fall. With a slightly later launch than usual this year due to the pandemic pushing sales into the period, Apple is widely expected to post its largest quarterly revenue total ever and its first ever total above $100 billion. The technology giant likely also continued to see benefits from remote-work and remote-schooling trends, which have driven strong iPad and Mac sales throughout the COVID-19 crisis.

Full preview: Get ready for Apple’s first $100 billion quarter in history

Facebook is also expected to post what should easily be a record quarter given strong digital advertising trends during the holiday period. Still, the company will face questions about user engagement and a decision to ban Donald Trump from the platform indefinitely over his role in inciting the violent riot at the U.S. Capitol. Bernstein analyst Mark Shmulik points to “continued usage fatigue” across social media as well as a “conversation skewed towards unmonetizable political events.”

Full preview: Facebook earnings still flourishing amid pandemic, economic slowdown and antitrust scrutiny

Tesla already disclosed delivery numbers for the full year that came in ahead of analyst expectations, and all eyes will be on the company’s outlook for 2021. RBC Capital Markets analyst Joseph Spak anticipates a delivery forecast of 825,000 to 875,000 million units for the full year, even though Chief Executive Elon Musk said on Tesla’s last earnings call that an analyst was “not far off” for expecting 840,000 to a million deliveries during 2021.

Full preview: Can Tesla’s sales growth match stock’s rise?

Here’s what else to watch for in the week ahead, which brings reports from 117 members of the S&P 500 and 13 Dow Jones Industrial Average
DJIA,
-0.57%
components.

Up in the air

Boeing Co.’s
BA,
-0.76%
journey remains turbulent even as the company’s 737-MAX jets were recertified after being grounded for almost two years. Though the company began deliveries of these aircraft, “the pace of delivering all 450 parked 737-MAX will be dictated by airline customers ability to absorb aircraft as well as air traffic demand,” according to Benchmark Company analyst Josh Sullivan.

Boeing’s Wednesday morning report will offer perspective on the company’s recovery expectations amid the pandemic, though Sullivan sees volatility ahead stemming from a recent equity offering and the impact of the COVID-19 crisis on airlines.

The fourth-quarter reports from U.S. airlines have been bleak so far, and American Airlines Group Inc.
AAL,
-0.06%
and Southwest Airlines Co.
LUV,
-0.80%
offer more on Thursday morning.

Can you hear me now?

Verizon Communications Inc.
VZ,
+0.35%
leads off a busy week of telecommunications earnings Tuesday morning, followed by AT&T Inc.
T,
+0.35%
Wednesday morning and Comcast Corp.
CMCSA,
-0.92%
Thursday morning.

For the wireless carriers, a key issue will be the impact of iPhone 12 promotions on recent results. Investors will also be looking for information about a recent wireless auction offering spectrum that will be crucial for 5G network deployments. Though the bids haven’t been made public yet, the auction drove record spending and AT&T and Verizon are both expected to have paid up handsomely to assert their standing. The question for investors is what impact these bids will have on the companies’ financial positioning.

Full preview: AT&T earnings to kick off a defining year for telecom giant

AT&T and Comcast have more media exposure than Verizon, and those two companies have been trying to contend with the new realities brought on by the pandemic. Both companies have made moves to emphasize streaming more with their film slates given theater closures, and the financial implications of these moves will be worth watching.

Paying up

The evolving situation with the pandemic is reflected perhaps no more clearly than in the results of Visa Inc.
V,
-1.52%,
Mastercard Inc.
MA,
-1.63%,
and American Express Co.
AXP,
-1.01%,
which have a pulse on the global consumer spending landscape. The companies should provide insight on a travel recovery toward the end of the year, as well as the impact of recent lockdowns.

Susquehanna analyst James Friedman wrote recently that his Mastercard revenue projection of $3.97 billion is slightly below the consensus view, though he also asked: “does anyone really care about Q4 2020?” Friedman is upbeat about mobile-payments and online-shopping dynamics that suggest “positive trends ahead” for Mastercard, which reports Thursday morning. Visa follows that afternoon, while American Express kicks of the week with its Tuesday morning report.

The chip saga continues

Advanced Micro Devices Inc.
AMD,
+1.38%
is poised to keep benefiting from Intel Corp.’s
INTC,
-9.29%
stumbles, which analysts expect to last for some time even as Intel prepares for a new, technology-oriented chief executive to take the helm.

“We have low confidence that Intel will be able to close that transistor gap quickly, and therefore expect it to continue to lose share for the foreseeable future,” Jefferies analyst Mark Lipacis wrote after Intel’s latest earnings report. AMD will show how that dynamic has played out on its side of the equation when it posts numbers Tuesday afternoon.

Full preview: If Intel gets its act together, can AMD maintain swollen valuation?

Other chip makers reporting in the week ahead include Texas Instruments Inc.
TXN,
-1.31%
on Tuesday afternoon; Xilinx Inc.
XLNX,
+1.26%,
which is in line to be acquired by AMD, on Wednesday afternoon report, when it will be joined by chip-equipment maker Lam Research Corp.
LRCX,
-0.06%
; and Western Digital Corp.
WDC,
-5.23%
on Thursday afternoon.

Busy week for the Dow

Among the 13 members of the Dow Jones Industrial Average
DJIA,
-0.57%
set to report this week are 3M Co
MMM,
-0.96%.
, Johnson & Johnson
JNJ,
+1.13%,
American Express, Verizon, and Microsoft Corp.
MSFT,
+0.44%,
all of which report Tuesday.

“Near term, we see the company’s COVID-19 vaccine readout as a key upcoming catalyst and believe efficacy in the 80%+ range would suggest a clear role for the product in the market,” J.P. Morgan analyst Chris Schott wrote of Johnson & Johnson.

Cowen & Co. analyst J. Derrick Wood sees tough comparisons for Microsoft especially in its Azure and server businesses, though he expects a more favorable situation going forward.

Full preview: SolarWinds hack may actually be a good thing for Microsoft

Wednesday brings results from Boeing and Apple, while Thursday features McDonald’s Corp.
MCD,
-0.07%,
Dow Inc.
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-0.10%,
and Visa. Honeywell International Inc.
HON,
-1.45%,
Chevron Corp.
CVX,
-0.30%,
and Caterpillar Inc.
CAT,
-0.13%
round out the week Friday morning.

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