The "demand winter" for electric vehicles has arrived, and Wall Street is shouting to escape quickly.

Electric vehicles may be seen by governments around the world as crucial for the future development of transportation and the decarbonization process. However, for investors in the industry, this is a challenging period.

Last week, Tesla, a leader in the electric vehicle industry, issued warnings about its performance growth and demand issues. Shortly after, General Motors (GM) stated that it is reconsidering its electric vehicle growth plans due to lower-than-expected sales. On Wednesday, just one day after General Motors announced a slowdown in production plans due to the nationwide strike initiated by the UAW, Honda announced its withdrawal from the plan to collaborate with General Motors in producing affordable electric vehicles.

For General Motors and Honda, the electric vehicle market environment is changing, especially with increasing costs and weaker-than-expected demand. Tesla CEO Elon Musk issued a demand warning when explaining why he slowed down plans to build a factory in Mexico last week. "I'm concerned about the high-interest-rate environment we're in." "What I want to emphasize is that the vast majority of people buy cars on a monthly payment basis. If interest rates stay high for a long time, or even go higher, demand will certainly be soft." Musk said at Tesla's earnings conference.

After releasing its latest Q3 quarterly report, German luxury car manufacturer Porsche warned about the impact of inflation and high interest rates. The company's CFO, Lutz Meschke, pointed out that the government's significant increase in interest rates has led to consumers being unwilling to purchase new vehicles.

With expectations of high interest rates, the electric vehicle industry is facing a demand "winter."

Recently, analysts on Wall Street have been lowering their ratings and stock price expectations for various electric vehicle companies. The main logic behind this is that the financial market and consumers increasingly believe in the hawkish view of Federal Reserve Chairman Powell and other officials, who have indicated that high interest rates will be maintained for a long time. Therefore, under the influence of factors such as persistently high borrowing costs, demand is weakening.

Investors in the stock market have already responded completely negatively to the prospects of electric vehicles. In the past three months, the iShares Self-Driving EV and Tech ETF, which covers leaders in the electric vehicle industry such as Tesla and Rivian, has fallen by nearly 30%. This decline far exceeds the MSCI ACWI Index, a global stock market benchmark, which has fallen by about 8% during the same period.

More detailed data shows that after leading the US stock market earlier this year, US electric vehicle stocks have started to plummet. Since Tesla announced its earnings on October 18, the Bloomberg EV Price Return Index, which tracks global electric vehicle stocks, has fallen by nearly 7%, while the S&P 500 Index has fallen by about 3% during the same period.The decline of the S&P 500 Index was only 2.5%.

"In the past 12 months, we have seen a significant adjustment in the growth rate of electric vehicle sales," said Charles Neivert, an analyst from the well-known Wall Street investment firm Piper Sandler. On Wednesday, the analyst downgraded the ratings of Albemarle (ALB.US) and Livent (LTHM.US), key suppliers of lithium, a critical material for electric vehicle batteries, from "buy" to "hold".

Neivert said, "At this point, the surge in the usage of the first batch of users has already occurred, and people realize that the next batch of buyers has not entered the market as expected."

Toni Sacconaghi, an analyst from the renowned investment firm Sanford C. Bernstein, recently stated, "To justify Tesla's high valuation, investors must believe that it can achieve very high sales and operating profit margins, similar to technology or software companies, rather than traditional car companies." "However, Tesla is becoming more and more like an ordinary car company."

High borrowing costs affecting the electric vehicle industry, worries prevail on Wall Street

Analyst Neivert pointed out that rising interest rates and concerns about an economic downturn are the reasons why potential buyers of electric vehicles hesitate, indicating that soaring borrowing costs are causing serious damage to the nascent electric vehicle industry, which is mainly composed of startups and small businesses. And this pressure is twofold: rising interest rates make car loans more expensive, but they also make it more difficult for car companies to raise funds.

Gabe Daoud, an analyst from the renowned investment firm TD Cowen, wrote in a client report on Wednesday, "Rising interest rates continue to damage market sentiment and put tremendous pressure on companies that need financing to execute their business plans."

Daoud downgraded the ratings of EVgo (EVGO.US) and Freyr battery SA (FREY.US), charging infrastructure supplier and lithium-ion battery manufacturer, from "buy" to "hold". In addition, Li-Cycle Holdings Corp (LICY.US), a battery recycling company, announced this week that it will suspend the construction of a factory due to rising construction costs.

Daoud stated that although the delivery volume of electric vehicles in the United States reached a historic high this year, companies seem to be reducing discretionary capital expenditures, indicating a reduction in charging facilities in the short term.Daoud pointed out that the price of light vehicles in the United States is currently 33% higher than in the first quarter of 2018, highlighting the issue of affordability, not just for electric vehicles. He stated that due to high interest rates and the strike by Detroit automakers' workers stimulating car imports, costs may further rise.

Tesla has been lowering the prices of electric vehicles to boost demand, but it has gradually found that price reductions have lost their ability to drive sales.

Adam Jonas, a star analyst from Morgan Stanley, said this week: "Rising interest rates/capital costs, as well as a slowdown in demand in the electric vehicle market, may continue to expose some weak projects and business models that may struggle to bridge the gap with their self-funding status."

Jonas pointed out that electric vehicle manufacturers Fisker Inc. (FSR.US) and Lucid Group (LCID.US), battery company QuantumScape Corp (QS.US), and Freyr need a large amount of external funding or financing to expand their business while absorbing years of losses.

In terms of Tesla's stock rating and price expectations, data compiled by investment research platform Seeking Alpha shows that Wall Street analysts have downgraded Tesla's consensus rating from "Buy" to "Hold," with an average target price cooling to $237.71. With the help of the AI investment boom this year, Tesla's stock price has risen by as much as 75%.

In addition, Seeking Alpha's statistical data shows that Tesla's analyst rating score has been declining since the beginning of this year, largely reflecting Wall Street's unease about the profit prospects of this electric vehicle leader. Currently, Tesla's Analyst Ratings are only 3.48 (out of 5, compared to scores close to 5 for NVIDIA and Microsoft), reflecting that more and more analysts are downgrading Tesla's rating from "Buy" to "Cautious Hold" or "Sell".