Uncertainty in the Market: Cooling of Growth Forecasts Weighs on Electric Vehicle Funds

Investors are rapidly withdrawing from electric vehicle (EV)-linked funds due to cooler growth forecasts and the potential re-election of Donald Trump, which threaten profit margins. Funds tracked by data source EPFR Global recorded net outflows totaling $1.6 billion through July 31 of the current year. This development marks a significant setback compared to the inflows in 2022. Portfolio manager Vicki Chi from Robeco in Hong Kong notes that the electric vehicle business is increasingly becoming an anti-Trump trade. Despite the support from Tesla CEO Elon Musk, Trump has repeatedly criticized incentives promoting the widespread adoption of electric vehicles. He publicly stated that he would overturn existing EV policies and raise tariffs on Chinese EV imports by up to 200% if these measures are implemented. This could further exacerbate existing concerns over a slowdown in electric vehicle sales growth. Analysts from JPMorgan Chase & Co. recently warned in a report that critical tax benefits under the Inflation Reduction Act could be withdrawn, and federal support for electric vehicles and related infrastructure could be cut. This would particularly impact manufacturers like Tesla, although CEO Elon Musk estimates the impact on his own company to be minimal, but devastating for competitors. In the first half of the year, Chinese funds, representing the world's largest EV market, saw nearly $500 million in outflows. Simultaneously, products in the U.S., South Korea, and Japan also reported net outflows in the second quarter. Warren Buffett's Berkshire Hathaway recently reduced its stake in Chinese EV manufacturer BYD from over 20% to below 5%. Additionally, major automakers like Ford Motor and Mercedes-Benz Group have revised their growth forecasts for electric vehicles downward. Volkswagen has revised its Porsche strategy, with plans now for new electric vehicle models to constitute less than 80% of total sales by 2030. Raj Shant, a London-based portfolio manager at Jennison Associates, emphasized that growth in end-demand or market share is by no means a guarantee of profit growth—which is ultimately the decisive factor for stock prices. According to BloombergNEF forecasts, EV sales, including plug-in hybrids, will increase to more than 30 million by 2027, corresponding to an average annual growth rate of 21%, compared to 61% between 2020 and 2023.