The Electric Vehicle Market Is Still Tepid
Phillip is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The release of Nissan Motor's (NASDAQOTH: NSANY.PK) Leaf EV line of cars has generated strong optimism for those owning the company's stock. The car is now the best-selling electric vehicle on the market, though Tesla Motors (NASDAQ: TSLA) sold more of its Model S vehicle in May. Despite increasing sales, the Leaf still doesn't appear to be making an impact on Nissan's income statement.
That's because while many people would like to own an electric vehicle, these automobiles aren't practical for every consumer and are still considered a niche product. This is largely due to perceptions about issues surrounding a short battery life and few charging stations available countrywide. Furthermore, the vehicle's price tag was a deterrent, that is until the major price cut in the 2013 Leaf, which is priced at about $32,000. This all adds up to meaning it could be a few years before companies like Nissan, Tesla, and General Motors (NYSE: GM) are making healthy profit margins to justify really pushing electric vehicles to the masses.
Time for a turnaround?
Things could be turning around for Nissan, with U.S. sales up 25% in May. Much of that is driven by a price cut of about $6,000 and other incentives to owners. Also, the devaluation of the Japanese yen (Nissan is a Japanese company) makes maximizing profits in the U.S. a priority. This is revving up efforts to turn Nissan into the car of choice for Americans. However, the vast majority of the company's revenue is from Nissan's gas-fueled vehicles.
The company has increased revenue by 28% from fiscal 2010 to fiscal 2012. However, the share price has gone up by about 30% in that time, so Nissan's healthy is no secret. Last year's profit margin was only about 4%, which is well below the 10% I use as a benchmark for my purchases. Nissan has grown to the point where it is dominating the auto market in Japan. If it continues to add incentives in the U.S., then it will increase its American market share.
GM making a comeback?
GM announced on June 10 a $5,000 discount for the Chevy Volt. In May, vehicle sales were fairly flat at 7,157. By comparison, Nissan sold 7,614 Leafs in May after a $6,000 price cut. The company also launched the Chevy Spark EV in late May. The starting price is only $27,495, showing the electric vehicles are becoming much more affordable than in the past and are actually close to the price of regular compact cars.
The company is gradually learning to walk on its own two feet again after receiving a government bailout in 2009. So far, it's done a good job, with profits returning in 2010. However, sales fell last year from $7.6 billion in 2011 to $4.9 billion. The future of this company's participation in the electric vehicle market is unclear, and so is its ability to make a full comeback. Unless sales of the Chevy Volt really jolt, I'd keep this stock out of my portfolio.
Tesla on a tear
The Tesla Model S has actually taken a large, unexpected chunk out of Nissan and GM's profits for electric vehicles. Despite the vehicle being more than twice as expensive ($70,890) as either the Leaf or Volt, the company sold 8,850 vehicles in May, on its way to beating both Nissan and GM's sales.
Tesla's stock price has received a jolt since March; that's when news of the Model S's appeal really spread. In March, the stock was priced at about $35 per share, and it was more recently trading at around $100.
The company also reported its first quarterly profit after considerable losses in previous years. The first quarter resulted in $562 million in sales and $11 million profit. I'd wait until the scheduled July 22 second-quarter earnings before deciding where this company may go.
When will the electric vehicle market become charged?
According to HybridCars.com, the demand for electric vehicles is starting to increase, but only 32,705 vehicles were sold in May. That represents just 0.5% of industry sales. Once electric car manufacturers are able to solve the perception of battery power being extremely limited, and the difficulty with charging the vehicles, the use will increase.
Right now, I'd put my money with Nissan, due to the company's diversification and sound financials, though Tesla's $100 share price could be justified if the spark that is being started by electric vehicles really catches fire.
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Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends General Motors and Tesla Motors . The Motley Fool owns shares of Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!