Banking giant Wells Fargo doesn't seem to be too bullish on the shift to electric vehicles. The financial services company hit legacy automakers Ford and GM with a double downgrade, citing concerns that recent headwinds could eat into the companies' profits. Karl Brauer, an executive analyst at iSeeCars.com, joined Cheddar's Opening Bell to discuss. "Unfortunately, Wells Fargo's reasoning is sound, and the fact that we're seeing all these price increases, and really, availability decreases in a lot of raw materials that you need to build electric vehicles: lithium palladium, nickel, all these things have gone up in price dramatically in the past 12 months, particularly in the past six months," he said.

Opening Bell

Ford, GM Get Downgrades From Wells Fargo Over EV Cost Concerns

let's bring in Karl brauer, executive analyst at iC cars dot com carl, can you break down the reason for this downgrade and whether you believe, um, kind of a similar stance here as well as Fargo unfortunately, Wells Fargo's reasoning is sound and the fact that we're seeing all these price increases and really availability decreases Lot of raw materials that you need to build electric vehicles, lithium palladium, Nickel, all these things have gone up in price dramatically in the past 12 months, particularly in the past six months. The conflict in Ukraine is a big part of that, but it really kind of illustrates the trouble with producing electric vehicles and I think for a long time people thought we've got to get away from internal combustion, the price of oil, it's so volatile, it goes all over the place. Well, guess what we've learned in the last six months, you know, oil isn't the only raw material that's got a lot of volatility related to the kind of vehicles that depend on it. So I think that's one of the things we're seeing that the financial analysts are seeing is that profitability on these electric vehicles is going to be much tougher or the prices have to come up. We've seen Tesla and Rivian raising prices pretty dramatically in the last six months and I think even the mainstream automakers like ford and GM, they tend to be kind of holding off now and their long term commitments to volume on these vehicles for the same reason because they're really not sure how much it's going to cost them to produce Well there are kind of clear headwinds here for both companies and really the entire space quite honestly. Um, I look at this in terms of a teacher teach art here and say well on the pro side on, in terms of tailwind for these companies, there is the development around energy and the reality that more people are excited are looking towards, you know, going over to an electric vehicle, auto maker and these two are pretty well positioned, really, the only one out ahead from them is a name like Tesla and everyone else is pretty much behind them. Yeah, it's this bizarre situation, right? Like I think a lot of people for a long time assumed these younger startups would have some kind of nimble innovation advantage over the legacy automakers. And so that was causing a lot of excitement for brands like Caribbean and even lucid and certainly Tesla and then we saw, you know, whether it was the Hummer that came out recently or the new lightning that I just drove last week in san Antonio fabulous vehicles, really well engineered, really well designed and I think that's one things back then people were like, wow, maybe the traditional automakers have all these advantages of global supply chains and production and retail retail outlets like dealer networks, but they've also got all the innovation that you need and I think that's been resolved, but the cost issue is going to hit all of them. This inability to go get things like neon to produce microchips and remember electric vehicles need even more microchips, I'm hearing 2 to 3 times the amount that a traditional car needs. So everything we've seen in the last few months on the lithium cost, the microchip, unavailability, all these things are hurting electric vehicles even more than traditional vehicles and none of them are being produced at the level these automakers would like, they could sell more cars that they could make between GM and ford, which automaker do you think is better suited to make this transition or be more flexible and agile during this transition And why? That's a good question. I think, I feel like Ford's a little further along. Right. They've already got the lightning ready to go and they've got it ready to go at prices that start as low as $40,000 at least right now, all the way up to, you know, 95,000 that Hummer. And then even the Silverado, which is coming like another year or two from now, they seem to be more expensive. You know, ford's also got the mach e going, that's pretty well. So they seem further along in their electric transition. But GM is also working on a lot of internal battery capabilities and technology which could directly impact the cost issue in a good way if they have more control over those costs internally. So that's, that's a tough call but ford seems to be further along today. Speaking of Ford in particular here, obviously Ford is mentioned, it's planning to ramp up its F150 lightning um production 250,000 units in the next year. Do you think that it's actually gonna be able to pull this off amid some of the headwinds that you mentioned even with something like chips? Well, we know they've stopped taking orders for those vehicles for exactly that reason, that I think there's some uncertainty both in production and in cost and we saw, you know, Rivian raised their prices recently and that didn't go so well because they were trying to raise it on people who already put orders in, but they feel like they have to, because of the rising costs. So it's a tough call at this point, I would say, you know, nobody should be holding their breath assuming that there's going to be predicted predicted production numbers for all these companies are going to come through and that we could see further delays and holdups in all these raw materials and just for clarity for investors in terms of a timeline for this downgrade. What are we talking about? Because I think when you're looking at a long term horizon, potentially still, this doesn't really apply, this is, this seems like more near term a year, maybe even two. Well, I feel like this, the, the excitement around electric vehicles is good and I think we're gonna see more of themselves and more people adopting them, but I think there's was already this kind of overestimation, this idea that, you know, too simple minded while we're oil cars and internal combustion is out and TVs in and that's all there is to it. And I think people need to take a little more sophisticated approach. You know, we will see a transition towards E V. S, But if we're assuming that that's going to happen completely by 2025, 2030, there will be no more internal combustion cars sold after 2030 if regulators force that it may not work for the reality of the costs and the infrastructure and the consumer appetite. So I think long term, as you're asking, we should see a shift toward TVs, but I don't think it's going to be at the level or rate that a lot of regulators and maybe even the automakers are trying to commit to right now. Alright, we'll see the evey race continues. It seems like car really appreciate your time and your insight. Karl brauer, executive analyst at iC cars dot com