The electric vehicle (EV) industry faces numerous challenges. Those challenges include bringing down the costs of batteries, improving charging infrastructure quality and availability, convincing consumers to make big purchase decisions amid high interest rates, and fierce competition.
It's the outlook for the competitive environment that may have shareholders of Rivian (RIVN 3.21%) and Lucid (LCID 1.02%) worried over Hyundai's newly announced plan to make a $51 billion investment in EVs and software-defined vehicles over the next three years. But the truth is, that's actually good news for the smaller automakers.
Hyundai's big splash
Hyundai intends to spend $51 billion over three years to boost its capabilities in electric vehicles and its mobility business, and hire roughly 80,000 new employees. More than half of that investment will go toward research and development and new assembly lines for EVs.
This is actually great news for pure EV companies such as Rivian and Lucid, which really need EV infrastructure to grow and begin challenging internal combustion engines across the board. It was once said that Tesla's competition wasn't other EV makers, it was the broader internal combustion engine industry -- and that has some real truth to it.
So really, for Rivian and Lucid, the faster the industry progresses and brings prices down, the better.
But March has also brought some bad news for the two EV start-ups.
Hertz ends EV gamble
After emerging from bankruptcy, rental giant Hertz decided to gamble on the future of EVs. It announced a plan to order 100,000 Teslas, and followed that up by placing big orders with Polestar. But those bets turned sour for it when the EV industry's price war shifted into high gear, sapping the resale value of the EVs in Hertz's fleet.
Now, Hertz has begun to sell off about 20,000 EVs -- roughly a third of its EVs. But it's the reasoning behind the sell-off that's bad news for Rivian and Lucid. Hertz said that weak demand, steep depreciation, and high repair costs forced its hand.
None of that bodes well for the EV industry's effort to supplant internal combustion engines, and it's bad news for Rivian and Lucid, which have been hoping for stronger demand.
Yet another example of bad news is Toyota's overall reluctance to push into EVs. In fact, Toyota Chairman Akio Toyoda, who was previously the automaker's president and CEO, recently said he believes that fully electric vehicles will at best only even achieve a 30% market share, while internal combustion engines, hybrids, and hydrogen fuel cell vehicles will split the rest of the market.
If Toyoda is correct, that would be extremely bad news for the long-term visions of Rivian and Lucid.
Perspective
What investors should take away from this as they keep an eye on the auto industry's trends is that headlines touting any rival's big EV plans aren't bad news for pure EV plays such as Rivian and Lucid -- they're good news. The bad news is when companies decide to pull back on their EV investments because they are relying on their internal combustion offerings to offset the weaknesses in their EV segments. These EV start-ups are competing with the industry to bring down battery costs and tackle the challenges of deploying a robust charging infrastructure.
In short, Rivian and Lucid shareholders should be cheering Hyundai's splashy EV investment plans, and hoping for similar announcements from other major automakers.
