EV sales collapse as incentives pulled

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Downturn

BMO senior economist Erik Johnson provided the details on a collapse in electric vehicle sales,

“U.S. electric vehicle (EV) sales dropped sharply following the end of federal tax credits. EV market share fell from 13 per cent in September to just over 7 per cent in October, accounting for most of the monthly decline in overall new vehicle sales. Year-over-year performance also reversed dramatically, with September sales up 31 per cent compared to last year, followed by a 27-per-cent decline in October. Canada has experienced a similar trend, with zero-emission vehicle sales down an average of 37 per cent year-over-year over the past eight months. Affordability remains the primary barrier as consumers focus on cost, and with many automakers scaling back EV production plans, the rollout of more affordable models is likely to take longer. The Takeaway: Expect continued volatility in EV adoption until pricing pressures ease and incentives return, making affordability the critical driver of future growth”

Volatility

CIBC chief economist Avery Shenfeld published a prescient look at what’s causing market volatility,

“Q4 is a blank slate. It will be dented by the government shutdown, but we can’t rule out seeing other disappointments that would challenge the positive spin on corporate profits ahead. If that’s still accompanied by elevated inflation, it could prevent the Fed from delivering a more aggressive response … we’re also beginning to see questions raised about whether the size of the AI payoff will be large enough to justify the trillions in requisite capital spending. Given the uncertainties surrounding such a breakthrough technology, markets ought to price in an elevated risk premium into any projections for earnings and credit risks, but that may not have been the case up to this point. A risk reassessment may have been triggered by earnings projections that put the windfalls for one player a bit further into the future than some investors can be comfortable with. The present value of a long stream of AI profits could well justify a hefty valuation, but one that should still leave a margin for the inherent uncertainties in distant earnings estimates. For those AI players without other large and profitable existing lines of business, debt is starting to pile up, and the revenues are far enough away that we are likely to go through periods of doubt along the road to riches, if that’s indeed the final destination”

“Taking risk seriously again” – CIBC Economics

Utilities

Citi analyst Andrew Kaplowitz reviewed meetings with U.S. utilities stocks. My main takeaway here is to watch for companies selling liquid cooling solutions to data centres,

“After attending the SC25 conference we continue to view growing investments into data center infrastructure and evolving data center power and thermal management needs as durable tailwinds for exposed Multis; covered companies we met with included NVT, VRT, ETN, PH, GTES, and DOV, each of whom we think could see multi-year upcycles in their data center exposed businesses. With data center technologies continuing to evolve at a rapid pace, our sense is that a focus on innovation and scalable manufacturing are key differentiators. Notably, adoption of liquid cooling amongst data center operators appears to be gaining traction but we think is still in the relatively early stages, which we think should mean significant growth opportunities for our companies who offer liquid cooling systems and/or components”

Bluesky post of the day

Diversion

“Oracle is already underwater on its ‘astonishing’ $300bn OpenAI deal” – FT