- By Graham Griffin
California Governor Gavin Newsom signed an executive order last week that will ban the sale of new gasoline and diesel-powered vehicles by 2035 and have them replaced with electric and alternatively fueled vehicles.
The executive order takes a hard stance on the sale of new vehicles that are powered by fossil fuels and is a reaction to recent struggles with wildfires and longtime air-quality problems. According to Newsom's office, 80% of smog-forming pollution and 95% of harmful diesel emissions are currently caused by transportation needs in the state.
The elimination of sales of gasoline and diesel new car sales is predicted to achieve more than a 35% reduction in greenhouse gas emission and an 80% improvement in oxides of nitrogen emissions. While all sales of new carbon-fueled vehicles will be prohibited after the order takes effect, people will still be permitted to keep their current vehicles and purchase used vehicles as usual. "We're not taking anything away," said Governor Newsom.
California has been notorious in recent years for their relatively harsh emissions standards and environmental rulings. Due to these standards, they have faced backlash from automakers and oil companies. Despite previous criticisms, six major automakers have pledged their support in the transition away from gasoline. These manufacturers include Volvo (OSTO:VOLV A), BMW (XTER:BMW), Honda (TSE:7267), Ford (NYSE:F) and Volkswagen (XTER:VOW3).
Unsurprisingly, on the same day as the announcement of the ban, Volkswagen revealed pricing and a release date for its new battery-powered ID.4 hatchback. The vehicle falls squarely into the increasingly competitive compact crossover segment of the market and is set to provide a high-tech alternative to conventional gas-powered vehicles.
Volkswagen maintains a fair value rating according to the GuruFocus Value Line, yet shows two severe warning signs of assets growing faster than revenue and an Altman Z-Score of 0.94 that places it in the distress column. The company has seen increased levels of debt in recent years despite cash flows being on the rise.
Not one to be left out of the news, Tesla (NASDAQ:TSLA) announced new battery technology that is 56% cheaper and is more than double the size of the current batteries that its cars use. The new battery provides five times the energy, 16% more range and six times the power according to CEO Elon Musk. Musk's announcement came alongside predictions that the company will be able to release an electric car at a $25,000 price tag and maintain Tesla's status as the most prominent of California's EV makers.
In contrast to Volkswagen, Tesla has settled in at a significantly overvalued rating according to GuruFocus. Currently there are three severe warning signs of assets growing faster than revenue, declining gross margin percentage and increased long-term debt. As the company continues to aim to increase production and build new plants, long-term debt will likely continue to increase until net income can be brought back into positive territory.
Disclaimer: Author owns no stocks mentioned.
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This article first appeared on GuruFocus.