2. EVs/Future Transportation
iShares Self-Driving EV and Tech ETF: -14.6%
As we noted earlier, the EV/Future Transportation industry has been facing strong headwinds, with the growth slowing down year over year. The Self-Driving EV and Tech ETF is down 14.6% year-to-date.
Fast Markets projects that the EV industry will grow 23% in 2024, which according to them, is a decline of 13% from the year prior. The year 2023-2024 saw scaling back of production projections by several major automakers like GM and Ford.
The period between 2020 and 2022 saw a lot of hype for various technologies, driven primarily by low interest rates, pandemic-driven cultural shift towards digitialization, and major developments in AI, blockchain and 5G technologies. The EV industry was no exception to accelerated tech adoption and hype.
The industry still expects the future of automobiles to be electric, albeit the growth to that future would be slower than anticipated in the previous years. There are several reasons for the hype die-down, with the first and foremost being the lack of adequate fast-charging infrastructure, capital cost issues due to lower EV resale values, and competition from Hybrids and Plug-In Hybrids.
However, oversupply issues in the battery industry could likely prove to be a tailwind for the EV industry, resulting in lower production costs and higher sales volume. As of now, batteries are 25-35% of the cost in EV manufacturing, with a typical EV costing nearly 33% more than an ICE vehicle in the US and EU. The time horizon for EVs becoming as affordable as ICE vehicles due to battery oversupply alone is around the end of the decade according to research by International Council for Clean Transportation.
As far as self-driving technologies go, they too were the beneficiary of the techno-optimism of the 2020-22 we talked about and they’ve been among the victims of the hype die-down as well. A report by F-Prime Capital showed capital pouring into the autonomous-driving industry declined by close to 60% in 2022. The same year saw Argo AI, a prominent autonomous-driving company disbanded due to a Q3, 2022 net loss of nearly a billion dollars.
However, Ford established a new division, called Latitude AI, for the same purpose and redirected Argo AI resources to the newly found division. This, of course, does not mean the industry is failing, just normalizing, with major players like Nvidia (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA), among others, continuing to advance the industry. The primary challenge with full-scale self-driving is hundreds of millions of road scenarios, with a long tail of extreme edge cases with high stakes that demand extreme model accuracy for autonomous driving to be truly viable. This is asking for a lot of data and a lot of computing power. TSLA already scraps data from its cars on the road, but in principle, it’s challenging to find useful edge cases needed to improve model performance from all the hundreds of thousands of hours of driving data.
