According to the Wall Street firm, electric vehicles will account for approximately 45 percent of new vehicle sales in the United States by 2030. That figure is relatively close to a national target recently set by US President Joe Biden for electric vehicles to account for half of all new vehicle sales by 2030.
European authorities, on the other hand, have proposed a “very challenging target,” and nearly all automakers will need to take “swift action” to make it a reality, according to Kota Yuzawa, managing director and head of Asia auto research at Goldman Sachs, on Friday’s “Street Signs Asia.”
The European Union detailed a plan to reduce greenhouse gas emissions in July, and the auto industry could be among the hardest hit. The measures proposed include a de facto ban on diesel and gasoline vehicles by 2035.
“Clearly, pure electric vehicle maker(s) should have a distinct advantage because they have no legacy costs to deal with,” Yuzawa explained.
There are winners and losers.
Toyota Motor, China’s BYD, and Tesla, he says, could stand out and benefit from the electrification trend with “pretty good profitability.”
Traditional automakers that rely heavily on gasoline engines are likely to face a “difficult situation.”
Mazda Motor of Japan is one such company, according to Yuzawa, which currently has a large exposure to gasoline engines and will need to “make a significant effort” to enter the electric vehicle space profitably.
An ‘extremely critical’ year is on the horizon.
Looking ahead, Goldman Sachs predicts that battery-powered electric vehicles will break even globally by 2022, thanks to government subsidies. Furthermore, the company expects electric vehicles to break even without government subsidies by 2028, as battery costs continue to fall sharply.
Prior to that, Yuzawa stated that 2025 will be a watershed year for the auto industry, with battery costs expected to fall by $100 per kilowatt, or half their current levels.
“At that price, almost all automaker(s) can be… reasonably OK in terms of this cost structure of electric vehicle,” he said.
The total cost of ownership for electric vehicle buyers may decrease over time as they save money compared to their previous gas expenditure.
“If you do the math — we call it the payback period — around 2025, you will see a payback period of less than three years, and that’s always a magic point,” Yuzawa explained, explaining that’s when consumers will start thinking about buying an electric vehicle for their next car.
“2025 will be a very, very critical year for almost all, you know, electric vehicle… makers and also consumers,” Yuzawa predicted.
Virgin Galactic gets downgraded
Analyst Kristine Liwag downgraded the stock from equal weight to underweight in a note to clients on Wednesday, stating that the excitement surrounding Virgin Galactic should subside as the flight schedule enters a quieter period.
“We expect shares to return to a long-term valuation of $25 as the company exits a catalyst-rich period following Sir Richard Branson’s successful flight and transitions to a prolonged period of no flights,” according to the note.
Morgan Stanley’s $25 price target is 20% lower than the stock’s closing price on Tuesday.
Virgin Galactic has a flight scheduled for September, but its Eve mothership will then undergo maintenance. Morgan Stanley predicted that the stock would fall during that period.
“During this intensive maintenance period, Virgin Galactic will be unable to conduct any space flights until the summer of 2022.” We see it as a positive that the company is investing in increasing its long-term space flight capacity; however, these investments take time,” said the note.
Virgin Galactic’s stock has been extremely volatile this year, with shares up nearly 50% since the May test flight that paved the way for founder Richard Branson’s historic flight last month.