China Dominates EV Market But “America First” Push Will Narrow the Gap

Race to Beat China Will Drive U.S. Electric Vehicle Strategy

The impact of climate change has become a significant talking point over the past decade as the world has adopted major green energy policies and raced toward saving the planet.

Major polluters like China have been steadily looking at ways to reduce their carbon emissions while minimizing the impact on economic growth.

In 2016, nearly 200 countries committed to the landmark Paris Agreement on climate that made countries focus on green energy strategies to cut carbon emissions.

President Donald Trump pulled the U.S. out of the agreement in 2017, but President Joe Biden rejoined and vowed to significantly cut emissions.

In the global green energy movement, the top global polluters—including China, the U.S., and Europe—have pledged to become carbon-neutral by 2050 or 2060. They’ll face challenges, and they’ll need to make major shifts toward green energy. This will be in the areas of solar, wind, and other alternative energy sources, as well as electric vehicles (EVs).

For green energy investors, solar power and electric vehicles are the top investment themes at this time. In the EV space, Tesla Inc (NASDAQ:TSLA) initially fueled the interest in the EV market, which the company continues to dominate—albeit there are now many competitors.

Chart courtesy of StockCharts.com

Massive EV Growth Over the Past Decade

The growth of the EV market has been staggering over the past decade as countries race to reduce the use of fossil-fuel-powered vehicles.

The evidence for the transformation in the EV space is clear. In 2019, the combined global sales of plug-in hybrid electric vehicles (PHEVs) and battery electric vehicles (BEVs) were in excess of 2.1 million. (Source: “Global EV Outlook 2020,” IEA, last accessed April 9, 2021.)

The total world stock of PHEVs and BEVs jumped to 7.2 million in 2019. Given that this represents a mere one percent of the total vehicles in the world, the potential for growth is significant. This means opportunities for EV makers (and EV stock investors).

The following table shows the breakdown of the global EV stock in 2019. China was easily the biggest EV market that year, about equal to the U.S. and Europe combined.

(Source: Ibid.)

But things are about to change under the Biden administration.

Biden’s Ambitious EV Strategy

China has long pushed major tax credits for EV purchases, which has helped drive the massive growth of the industry in the country.

Biden has indicated his desire for the U.S. to leapfrog China and become the top EV player, but whether this will happen is debatable, considering the sheer size of the Chinese EV market, as far as demand and population go.

Early indications show Biden clearly stomping on the throttle to drive U.S. EV demand. He aims to have an all-EV government vehicle fleet.

In addition, as part of Biden’s massive $2.3-trillion infrastructure plan, his administration is looking to spend $174.0 billion to push the demand for EVs and install 500,000 charging stations nationwide. (Source: “Biden Plan Calls for $100 Billion in New EV Consumer Rebates: Email,” Reuters, April 7, 2021.)

Biden wants to entice EV buyers with rebates. No details have been released on the individual rebates under the proposed $100.0-billion rebate program, but Biden’s plan could be a game changer for the EV market in the U.S.

At the current time, there’s a $7,500 tax credit for PHEVs and BEVs (although Tesla and General Motors Company (NYSE:GM) no longer qualify because they have sold more than 200,000 zero-emission models), so the idea of a rebate could really drive EV sales.

Analyst Take

I expect the tailwinds for the EV sector to accelerate under the new U.S. green energy plan.

As such, I believe there will be major opportunities with EV stocks, which I will present in an upcoming commentary.