Electric Vehicles are Slowly Taking Over
Concern for the environment and the impact of climate change has led to a notable increase in the demand for electric vehicles (EVs).
Around 1900, electric cars made up a third of all cars manufactured in the United States. As power by petroleum became more economically viable and accessible to the public, electric cars faded from the planet around 1920 in favour of Internal Combustion Engines (ICE).
Since the 1960s, concern over rising petrol prices and air pollution led to the many policies promoting EVs being passed in America.
The breakthrough came from the Toyota Prius, the first mass-produced hybrid car. Many manufacturers joined this new hybrid production, including Tesla and GM Motors.
In 2019, automakers launched 143 new electric vehicles. It is predicted by some that 450 additional models will be released by 2022.
Cathie Wood’s Ark Invest predicts that global EV sales could scale roughly 20 times from $2.2m in 2020 to $40m in 2025, making this industry very significant for any long-term investments with 2030 in mind.
Since the launch of the Tesla Model 3, Tesla outperformed many of the big competitors before the rise of COVID-19 whilst other key players include many manufacturers from China as well as Germany.
The trends of this market are very susceptible to changes in government policy, for example, likely contributors are the EU’s new emission’s standard and the China 6 standard, which is one of the most stringent emission standards around the world.
Why invest in EVs?
- Battery costs are declining and have already fallen 89% from 2010 to 2020 according to ARK Invest. By 2023, average prices will be close to $100/kWh – the price point at which automakers can make and sell mass market electric vehicles at a price comparable to ICE vehicles.
- There are several regulatory instruments promoting the shift to electric vehicles – The European Union has the CO2 Emissions Regulation, China has the New Energy Vehicles Mandate, and California has the Zero-Emission Vehicle Program.
- Bloomberg’s 2018 Electric Vehicle Outlook predicts that there will be 289 EV models on the market by 2022, up from 155 at the end of 2017.
- Bloomberg additionally forecasts 30 million in EV sales by 2030, up from 1.1 million in 2017 and a predicted 11 million in 2025.
What might make investing risky?
- The core business of the traditional automaker originates from ICE cars that are produced with high profit margins. Daimler AG puts the current profit of EV at approximately half of traditional cars.
- The assumption that EVs will make up 50% of new car sales by 2040 is somewhat optimistic. It is not guaranteed that they will dominate the roads.
- There’s a lot of investment required beyond just the making of the car. You require investment into recharging infrastructure, battery supply chains, and power generation facilities.