Is the death of the electric vehicle sector greatly exaggerated?

DeepWater Asset Management issued a report on the electric vehicle sector after EV deliveries in the U.S. experienced a year-over-year decline of about 6%, marking the first quarterly drop in modern history. The downturn contrasted sharply with the 9% growth recorded in the previous quarter.

Tesla (TSLA) led the decline, with its overall deliveries down 14% and U.S. deliveries estimated to have fallen by around 18%. Analysts Gene Munster and Brian Baker pointed to a cooling of consumer enthusiasm and specific challenges facing Tesla (TSLA), including the effects of CEO Elon Musk’s public actions on brand perception.

Despite the apparent headwinds, Deepwater noted that EV market share in the U.S. has remained stable, holding at around 8% of new light vehicle sales, according to Cox Automotive. While J.D. Power notes a slight year-over-year drop in EV market share to 8.4%, hybrids have surged to a record 14.1%, reflecting a shift in consumer preference toward transitional electric options. The stability in EV market share is seen as being partly due to increased incentives from non-Tesla (TSLA) manufacturers, which have helped offset high average EV prices, still around $57,700, compared to $46,200 for all new cars.

Looking ahead, the report notes that the sunsetting of federal tax credits in the U.S. will pose a challenge, as about 60% of current EV buyers utilize the incentives. The loss of the $7,500 credit could effectively increase EV prices by 13%, potentially dampening sales by 15%. However, Deepwater noted that periods without tax credits, such as from 2020 to mid-2022, did not prevent robust sales growth, particularly for Tesla’s (TSLA) Model Y. The takeaway is that compelling new models can still drive significant demand even in the absence of incentives.

Notably, Cox Automotive has adjusted its 2025 forecast, now projecting EVs to account for 9% of new vehicle sales in the U.S., down from 10% previously expected, although unit sales are still forecast to rise by 10% to 12% year-over-year. The report concludes that while the pace of EV adoption has slowed, the fundamental economic incentives for electrification remain strong. As charging infrastructure expands and more affordable EV models become available, mainstream adoption is expected to accelerate.

Globally, electric vehicle market share increased in Q2 to 25%, including plugin hybrid vehicles. China continued to dominate the global EV market, accounting for over 50% of worldwide EV sales in Q2. Europe also saw solid growth, despite the sluggish sales on the continent for Tesla (TSLA).

A broad list of EV-related stocks includes Tesla (TSLA), BYD (OTCPK:BYDDY) (OTCPK:BYDDF), General Motors (GM), Ford (F), Volkswagen (OTCPK:VWAGY), NIO (NIO), Li Auto (LI), XPeng (XPEV), ZEEKR Intelligent (ZK), VinFast Auto (VFS), Niu Technologies (NIU), Lotus Technology (LOTS), Rivian (RIVN), Polestar (PSNY), Hyundai (OTCPK:HYMTF), BMW (BMWYY), Toyota (TM), Stellantis (STLA), Magna International (MGA), Continental AG (OTCPK:CTTAY), Panasonic Corporation (PCRFY), Samsung SDI (SSDIY), Faraday Future Intelligent Electric (FFAI), BorgWarner (BWA), Modine Manufacturing (MOD), Workhorse Group (WKHS), Nikola (OTC:NKLAQ), Fisker (OTC:FSRNQ), Kandi Technologies (KNDI), Arcimoto (OTC:FUVV), Ayro (AYRO), ChargePoint (CHPT), Ambarella Inc (AMBA), and Albemarle (ALB).