One of the major stories in 2020 was the spectacular performance of Tesla
Now, we are seeing a resurrection in the EV trade with the most notable example being Tesla's more than 50% gain from its May lows. There have been several catalysts for Tesla's strength including continued progress in terms of the company increasing production and gradually turning cash flow positive. Other catalysts include the recent deal with Hertz
And like what we saw in 2020, now we are seeing many of the smaller, EV stocks also follow Tesla higher. Some notable examples include NIO
The biggest catalyst is gains in oil prices which mean that EVs become more attractive on an economical basis. We see this clearly with SUV sales that spike when gas prices are under $3/gallon. In contrast, demand for vehicles with better fuel efficiency spikes during periods of higher gas prices. Given that oil prices have been so strong but investments in new supply have been below-trend over the last decade, it means that this new era of high gas prices is likely here to stay.
Finally, the most recent catalyst is the inclusion of EV tax credits in President Joe Biden's reconciliation package which is expected to be voted upon in the next week or so. The plan includes a $12,000 tax credit for cars that cost up to $80,000. Part of this is $4,500 in tax credits for EVs that are made in unionized factories. The tax credits would be available for buyers up to $250,000 in income.
