European Automakers Cheer EU's EV Move

The EU is looking to renew its boost of electric vehicle battery manufacturers and keep the UK in the loop as scaling up manufacturing in Europe has been slower than expected.

Power Sourcing Problem

Last week, the EU made technical announcements to reinvigorate the EV battery manufacturing sector. The first, which garnered more headlines in the context of post-Brexit negotiations, was to postpone the introduction of a 10% tariff on EV batteries that were coming from the UK. This is particularly important for Jaguar owner Tata, as it has committed to building a £4.0 billion battery factory in Britain. This would be one of the largest battery factories in Europe. Initially, the idea was to produce batteries for its own vehicles but expand production to supply other brands, which could sell more in the EU.

The second part of the EU announcement was another €3.0 billion in subsidies for sustainable battery manufacturing among EU member states. The funding is expected to be available over the next three years, with the target of competing against other subsidies that reduce the cost of battery production overseas, particularly in China (the largest producer) and the US, with its support through the IRA for domestically sourced batteries.

The Impact on the Market?

Cost is now becoming an increasing challenge for the electrification of European roads. While fully electric cars have seen substantial growth in sales this year (+47% y/y), they are still a fraction of the market. A fraction that is expected to see slowing growth in the coming years. High interest rates are hurting vehicle sales generally, particularly EVs with a larger sticker price. Sixt recently said it wouldn't be buying Teslas due to the loss of resale value.

Analysts suggest that European consumers are putting off the purchase of EVs in the hopes that prices will go down or that technology will improve. Dealers suggest customers would rather wait a few years for the next model. Particularly, the cost to replace the battery is a concern that is keeping many Europeans from going fully EV despite a looming ban on fossil fuel cars. BEVs are still almost a third more expensive than their internal combustion counterparts.

European automobile manufacturers cheered the EU's move on subsidies and tariff reductions. They cited its importance to the battery value chain and how it allows European manufacturers to have some improved competitive advantage against Chinese batteries that are 30% cheaper. Among the companies that could see the most benefit from the deal is Netherlands-based Stellantis, which has major operations in the UK through its Peugeot and Citroen brands.

Stelantis Hit Measured-Move Target

The stock price of Stellantris has been constantly hitting new record highs since the end of November as it remains in price discovery territory. Projecting a price target using the triangle's opening height (measured-move) brings us exactly where the stock trades today, at  €23.50. However, that doesn't mean the top is in. Typically, extensions in 5-wave moves, pullback before surging higher. So, the trend could continue if prices remain above  €20.70. Notably, that's the same level as the lower gap, with another higher up at  €22. Next up is  €30.

Source: Stellantis N.V.

Key Takeaways

The EU has taken measures to boost Europe's electric vehicle battery manufacturing sector. They have postponed import tariffs on UK EV batteries and allocated €3 billion in subsidies for sustainable battery manufacturing within the EU over the next three years. However, cost remains a challenge for wider EV adoption in Europe. Although EV sales are growing, they still account for a small market share, and growth is expected to slow due to rising interest rates and higher EV prices compared to combustion engine cars. European automakers have welcomed the EU's actions as it could give them an advantage over cheaper Chinese batteries. Companies like Stellantis, which owns Peugeot and Citroen, could benefit.