How Rising Interest Rates and Market Losses May Affect the EV Industry

Many industries face strong headwinds caused by macroeconomic forces, and the electric vehicle sector is no exception. Some believe demand may begin to fall away due to rising interest rates and a slowdown in general market performance. What does the picture look like at the moment?

Interest Rate Challenges

The continued rise in interest rates may impact electric vehicle stocks in the short term. Only recently, the Federal Reserve hiked base interest rates by three-quarters of a percentage point, which was the most significant increase for almost 30 years. This comes at a bad time for some EV manufacturers trying to expand production capacity to keep pace with a burgeoning market. However, these companies also need to keep a close rein on costs, and an uptick in the price of money may lead to a lower bottom line. 

Of course, this is even more problematic for early-stage manufacturers who may be yet to turn a profit of any kind. They may need to attract further equity to fund any expansion, which could dilute individual stocks and cause additional problems.

Supply Chain Disruptions and Commodity Issues

Supply chain disruptions and rising commodity prices (linked to higher inflation) may also affect market share. Some raw materials are difficult to source, especially from Russia (a leading nickel producer). Other raw materials originate in China, where shutdowns triggered by the pandemic may have their own effect.

All these raw material prices may increase significantly due to the laws of supply and demand, leading to a rise in the cost of the finished vehicle. This may stall market growth until the market flattens out.

Looking Ahead

Some may think these are significant problems for an emerging industry, but interest rates may soon peak and come back down. Issues associated with the supply chain may also improve, which means that the EV industry is still a safe, long-term bet.

Do you think the EV industry will continue to grow at its record pace, or will these headwinds continue to cause havoc? Do you intend to invest in an EV soon? Let us know in the comments below.

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