Electric vehicle stocks are having a rough start to the week as the market drops and investors worry that high-cost purchases are slowing down. Home Depot's earnings release this morning showed a 4% drop in same-store sales in the U.S., driven by fewer high-priced purchases.
While EV stocks and home improvement companies don't often have a lot in common, if we're seeing consumers pull back on home spending, they will likely also pull back on vehicle spending.
Shares of Tesla (TSLA +2.96%) dropped as much as 3.3% today, Fisker (FSR +0.00%) fell 12.3%, and QuantumScape (QS +0.85%) dropped 7.6%. Shares closed down 4.5%, 13.8%, and 6.8%, respectively.
Image source: Getty Images.
Are consumers pulling back?
The worry Elon Musk has been talking about for more than a year is rising interest rates, which make it more costly to buy high-priced items like electric vehicles.
Tesla's falling margins and light growth guidance have indicated that consumers aren't willing to spend as much as they once were on a Tesla, so the company has had to reduce prices to move vehicles. If consumers are now thinking twice about appliances and home improvement projects, auto sales may get harder in the future.
If people aren't buying high-priced electric vehicles, then there's less money for battery development and new vehicles, which is how QuantumScape makes its money.
Consumer sentiment and interest rates drive the auto industry, and right now it doesn't look like either is trending in the right direction.
NASDAQ: TSLA
Key Data Points
A YouTuber has harsh words for Fisker
Fisker didn't get any help from popular YouTuber MKBHD, who called the Fisker Ocean the "worst car he's ever reviewed." The review already has over 1.7 million views and has gone viral in auto circles.
While a single review isn't going to make or break Fisker, it did highlight just how far behind the company is in the EV space. Its software isn't anywhere close to rivals', and some design choices like solar panels on the roof and small roll-down windows in the back seat seem questionable from the start.
Out of their control
The ups and downs of the market are largely out of any one auto company's purview. They can prepare for hiccups, but an economic downturn or higher interest rates aren't things within management's power to control.
This has always been the reality of the auto industry, but we haven't been through a major downcycle since 2009. Even 2020 was a boon for Tesla because the undersupply of vehicles allowed the company to raise prices and, by extension, margins.
The problem for all of these companies is that the market has valued EV companies as if there's no end in sight for growth. But that's likely not the case. EVs are gaining some market share over internal combustion vehicles, but the growth rate has slowed dramatically, and traditional automakers are seeing steady prices while EV companies ramp up production and fight for customers by reducing prices.
That's a tough position to be in, and days like today the market is reminded that a weakening consumer would be terrible for EV stocks long-term.
