Consumers are stretched thin, tapped out of credit: Unicus Research's Ganapathi

Key Concepts:

• EV (Electric Vehicle) market challenges: Scaling production, financial difficulties, consumer charging frustrations.
• ChargePoint: EV charging company facing challenges due to Tesla opening its charging stations.
• Consumer credit deterioration: Impact of "buy now, pay later" (BNPL), stimulus checks, auto loan originations, and rising delinquencies.
• Asset-backed securities (ABS): Specifically, auto loan ABS and their performance in the current economic climate.
• PCL (Provision for Credit Losses): A bank's estimate of potential losses from loans.

EV Market and ChargePoint

• Early EV Hype (2020-2021): The EV market saw many companies aiming to become the "next Tesla," focusing on innovative concepts like subscription models and prototypes.
• Scaling Challenges and Bankruptcies: Companies like Fisker, Faraday Future, and Canoo faced significant financial difficulties and went bankrupt around 2024 due to their inability to scale production cost-effectively.
• ChargePoint's Struggles: ChargePoint is facing challenges as Tesla opened its charging stations to all EVs, making it more convenient for consumers and putting ChargePoint at a disadvantage.
• Consumer Frustration: Consumers are experiencing frustrations with EV charging infrastructure, indicating a problem with the product or service provided by companies like ChargePoint.

Consumer Credit Deterioration

• Paycheck-to-Paycheck Living: 60% of the population lives paycheck to paycheck, relying on "buy now, pay later" (BNPL) services to bridge financial gaps.
• BNPL for Groceries: A concerning 25% of BNPL users are using it to pay for groceries, indicating a precarious financial situation for many consumers.
• Impact of Stimulus Checks: Stimulus checks during the COVID-19 pandemic had a mixed impact on consumer credit. Some consumers used the funds to pay down debt, improving their credit scores, while others used it to purchase items they wouldn't normally afford, such as a Maserati, leading to increased auto loan originations.
• Post-Pandemic Hangover: The economy is now experiencing a "post-pandemic hangover," with consumer delinquencies on the rise.
• Auto Loan Delinquencies and Repossessions: There is a spike in charge-offs and repossessions in the asset-backed securities (ABS) market, specifically related to auto loan originations.
• Lack of Impact on Equity Side: Surprisingly, the rising delinquencies and repossessions in the auto loan ABS market have not yet significantly impacted the equity side, as companies are not yet increasing their PCL (Provision for Credit Losses).

Asset-Backed Securities (ABS) and Auto Loans

• Focus on Auto Loan ABS: The analysis focuses on asset-backed securities (ABS) specifically related to auto loan originations.
• Spike in Charge-Offs and Repossessions: The key finding is a noticeable increase in charge-offs (loans written off as uncollectible) and repossessions within these auto loan ABS.
• Lagging Impact on Equity: Despite the concerning trends in the ABS market, the equity side (i.e., the companies that issued the loans) has not yet reflected these issues in their financial reporting, specifically in their PCL (Provision for Credit Losses).

Conclusion

The EV market is facing challenges beyond initial hype, with companies struggling to scale and consumers experiencing charging frustrations. Simultaneously, consumer credit is deteriorating, with a significant portion of the population living paycheck to paycheck and relying on BNPL for essential expenses. The auto loan ABS market is showing signs of stress, with rising delinquencies and repossessions, but this has not yet translated into a significant impact on the equity side. This suggests a potential lag in recognizing the full extent of the consumer credit deterioration within the broader financial system.