To The Moon

I was watching a stock pitch recently for Ford ($F). Their main thesis was simple: Ford is a growth story, ready to jump in on the EV boom.

Ford is a legacy car brand. They’re ancient. Can they really be a growth play?

EV growth is indeed huge. In fact, EV sales in the US went up 65% last year. This doesn’t mean that legacy car companies are positioned to be growth stocks.

EV sales in the US will cannibalize the existing car market. So if Ford makes money selling its electrics, it’s probably also selling less gas cars. Every EV sale in the United States bites into consumer demand that used to be entirely gas cars.

Buying autos becomes tricky in this situation. Generally, we ought to be careful about which type of growth products experience. Is it general growth due to the creation of a new market or new demand? Or is it cannibalistic growth where a product eats another’s demand?

Automakers are trying to win in the EV game. Gas cars will make up less and less of the total number of cars bought in the United States. When people tell me that an automaker has a new EV or its EV line has growing sales, that is not a reason to buy.

Carmakers that win will be the ones that:

1. Have popular EVs
2. Offset their gas car losses with EV sales and then some

The number of cars sold in the US doesn’t grow every year. If anything, carmakers are fighting for a bigger slice of a shrinking pie.

EV sales will displace current gas sales. This iwlll shake up the composition of cars sold by brand — 2030 will be a completely different competitive landscape than 2015 was. The most that automakers can hope for is to steal marketshare from their rivals during this transition period.

So when I see auto stocks, I consider whether or not I think they can make up for their displaced demand and excel in the EV space enough to boost their share of total car sales.

I’ve heard the growth play over and over: GM, Volkswagen, Ford, and I’ll probably hear it about more legacy carmakers in the future. Remember that this new growth market of EVs is disrupting the existing market. It will consume before it creates.