Will it be a bust?

Is the first electric-vehicle recession here, or coming soon?

As electric-car stocks plummeted in late 2022, the rout evoked comparisons to the dot-com stock bust two decades ago. Like the internet industry then, the EV industry boasts companies, notably Tesla,  that look like long-term winners, but it is also made up of young companies that may not have the cash to ride out a downturn, as well as in-between players like Lucid Group, Fisker and Rivian Automotive, that have done their best to prepare, and whose fate may depend on how bad things get.

With the economy at an inflection point between receding inflation fears and broad expectation of a recession beginning in 2023, the market doesn’t know what to make of moves like Tesla’s big price cuts, first in China and then on Jan. 13, in the U.S. and Europe. Analysts like Guggenheim Securities’ Ronald Jesikow said it could push Tesla’s profit margins 25% lower than Wall Street consensus and drain profits from all of Tesla’s competitors. But optimists like Wedbush analyst Dan Ives think it’s the right, aggressive move to jumpstart the EV transition amid macro uncertainty.

“Many dot-coms didn’t make it,” Ives said. “There’s no stress test for a severe recession for an industry that’s in its infancy.” 

What happens next — whether battered EV stocks rebound, whether young companies that need more funding will be able to get it, and whether the sector becomes the jobs engine Washington was counting on when it passed the Inflation Reduction Act last summer, laden with tax credits for EVs — depends on the economy first, and the markets second.

The “first EV recession” theme comes with a big if – that there is a recession in the first place, either here or in China, where Tesla sales dropped 44 percent in December from November levels as the government there continued struggling to contain Covid-19. 

In the U.S., most economists and CEOs think a recession is likely this year, though the market gains of the last week may reflect the beginnings of a change in the investor outlook, with more believing in the “soft landing” narrative for the economy. One holdout, Moody’s Analytics chief economist Mark Zandi, forecasts a months-long “slowcession” where growth doesn’t quite turn negative. Either scenario would likely hurt car sales in general, which were the worst in a decade in the U.S. last year, but where some auto executives are now slightly more confident about a rebound, though the EV outlook among the automakers has become more cautious in the short-term. But either scenario may be too pessimistic if the economy responds positively to now-slowing inflation.

The outlook from China, home to more than half of the world’s EV sales, according to Clean Technica, is at least as murky. Manufacturing moved into negative-growth territory late in the year and housing prices are…