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“If You Build It, He Will Come”

Sigma Investment Counselors

December 11, 2019

According to Wikiquote, this was ranked as #39 of the 100 most memorable American movie quotations of all time.  In the film, Field of Dreams, an Iowa corn farmer builds a baseball diamond, and storied deceased baseball players emerge from the cornfields to play ball.

This concept works well for the movie, but may prove to be more difficult for the world’s vehicle manufacturers as they shift production towards electric vehicles (EVs).   Currently, consumer acceptance of EVs seems to be modest.  However, this may be more a function of the very limited selection, as most manufacturers have only recently committed to producing a broad range of EVs.

Consider the current status of pickup truck manufacturing.  The total US market for pickup trucks is just over 3 million, substantially all conventional, internal combustion engine (ICE) powered.

Over the last several months, eight of the world’s vehicle manufacturers have announced plans to build new battery-powered trucks by 2021.

One question is, who will buy them?  Another potentially more important question for investors is, at what price?  It is too early to accurately assess whether the world’s auto companies are embracing EVs out of perceived consumer interest or government mandates.

Investors should consider that, during the very brief history of EV sales, a high percentage of demand has been driven by subsidies or mandates.  If this continues after consumers have real choices, profitability may prove to be elusive.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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