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The electric vehicle (EV) market is no longer a niche market. Let me repeat that, the EV market is no longer a niche market. What was once a side gig and nod to the green movement has become a revolution in the automobile market and a double-digit growth opportunity for investors.
If you thought the outlook for EVs was robust a few years ago, it has only gotten stronger. The global EV market grew by more than 100% in 2021, far surpassing the expectations, to hit a new record and the outlook for future growth has increased as well. Sales of EVs are expected to grow to 26.8 million by 2030 and account for nearly 30% of all cars on the road and that may be a low estimate given the pace of acceleration within the industry. By 2035, EVs should account for more than 70% of all vehicles on the road.
In that time, the net of EV sales is going to grow from an estimated $90 billion in 2020 to over $15 trillion by 2050. Based on what we’ve been seeing out of the industry, these estimates may be too low. Major OEMs like Ford and GM have ramped and ramped their plans for EV again and again as the market screams for more.
The EV Industry Is Supported By Regulations
Regulations are supporting the EV industry worldwide and should continue to do so for the foreseeable future. Although the quantity and scope of subsidies shrunk from their peaks in the earlier portion of the century they are on the rise again due to increased support of green initiatives.
In the U.S., the Biden administration is supporting a swath of regulation and legislation intended to boost the industry and it is accelerating growth. Among the many plans is a switch to 100% electric within the federal fleet along with subsidies and tax credits for buyers. The goal is to have US EV auto sales at 50% of the total as soon as 2030 but that goal is unlikely to be met. The highest-profile use of EVs in the government is with the US Postal Service which is expected to spend upwards of $12 billion on EV delivery vans.
China extended its policy of dual subsidies in 2020, one for the maker and one for the buyer, but those subsidies may soon phase out. Those subsidies are set to expire this year but may be extended in the wake of COVID-related economic hardship in late 2021 and the first half of 2022. Regardless, regulations in China are shifting consumers away from ICE automobiles and into cleaner technologies such as EV and hydrogen so don’t count this market out.
In Europe, the story is the rosiest in terms of regulations. The EU has some of the strictest regulations on CO2 emissions which by themselves are driving demand for EVs. The latest estimates have EV market share in the EU in the 21% range versus the 10% global average for 2021. At last count, 17 of 27 EU member nations offer incentives for electric vehicles.
Sizing Up The Competition In The EV Industry
Tesla is by far the most prolific of all the EV manufacturers but the competition is heating up. In terms of its annual sales, Tesla (NASDAQ: TSLA) is still just a drop in the bucket compared to GM’s (NYSE: GM) total sales but GM is lagging when it comes to EVs. GM, the number two EV producer in the U.S., only commands about 10% of the US EV market compared to Tesla’s 53% but plans to spend up to $27 billion to correct that. Part of the plan is to have a full line of EV vehicles by 2025 making it one of the most serious of the big automakers and that is saying something. All of the major manufacturers are planning for or are in the progress of expanding their EV lineups right now. .
Aside from the major OEM manufacturers, the EV market is filled with start-ups and early-phase production companies. Some are producing revenue while others are not so beware of what you buy. The key takeaway here is production, EV manufacturers with no production are incredibly risky while those making cars are less so. Some of the hottest names of the SPAC boom saw their share prices implode because of no production but many of them have advanced to the point of early if not ramping production.
The avenues for growth in EV are varied for the big automakers but can be classified into three categories; internal investment in electrification, investment in third-party technology, or acquisition of third-party technology. In the end, all the big manufacturers are going to employ a combination of the three which is why a diversified approach to EV investing is such a good idea.
Today’s fractured EV market is moving higher in a rising-tide-lifts-all-ships scenario but not all will be winners. The smaller start-ups that prove their utility will either make their deals for expansion and growth or get scooped up by their larger counterparts. If they don’t, they’ll fall by the wayside while the big players' success is all but assured. Either way, investors will come out ahead but which EV manufacturer will ultimately come out on top? The most likely scenario has the major automakers plus Tesla maintaining their dominance but who really knows?
Batteries, EV Is All About The Batteries
When you break it down into its components, an EV car is just a car with an electric motor. It’s a smart car but a car nonetheless. It could be fueled by anything but it’s not, it’s EV so that means batteries. We don’t have any other way of realistically powering an electric vehicle without them, otherwise, they’d be some other kind of car, like a hydrogen fuel cell. And batteries are the Achilles heel of the industry. Batteries have a limited range compared to gas engines, they’re heavier, they’re more expensive, and they don’t last very long although the average lifespan is greatly improved.
The most efficient electric vehicles can achieve a range of over 350 miles but it may take 6 to 12 hours to recharge the battery, sometimes more. The average EV can be relied on for a range closer to 200 miles per charge which is quite low compared to the 350 to 400-mile range for most cars and an easy five-minute fill-up for gas and diesel-powered vehicles. The takeaway here? Whoever revolutionizes battery technology is the one who will dominate the battery and possibly the entire EV market. If not, if there is no major battery break-through, hybrid solutions may become more commonplace, especially for long-distance applications.
Aside from the cost of the batteries, there is availability to consider as well. Many EV manufacturers are limited by the number of batteries they can buy or make so many EV and battery manufacturers are ramping the in-house production of batteries, so keep this industry on your radar. In the end, the battery makers may be the better investment because we know that consumers will need to buy them even if we don’t know which car the battery will be in. One interesting idea is easily removable batteries that allow for quick change-outs and quicker recharge times.
Right now, the leading battery markers are all in Asia although production is building globally. Among the leaders are China’s Contemporary Amperex Technology which is the world’s largest EV battery maker. It counts BMW, Volkswagen, Daimler, Volvo, Toyota, and Honda among its customers. Moving down the list Panasonic and LG Chem round out the top three in terms of gross production and they account for nearly 70% of the market.
These Are The Leading EV Manufacturers
Tesla (NASDAQ: TSLA) - Is The Leader In Electric Cars
The Tesla (NASDAQ: TSLA) story is a market saga spanning many years with many twists and turns. The one thing that can be said of the company and its eccentric CEO Elon Musk is that they produce results. The company is the single largest manufacturer of electric vehicles worldwide and will likely hold onto that spot for some time. Not only is the company actively engaged in expanding its production capabilities and product line but it is also making batteries. Lots of batteries.
Tesla has six Gigafactories in some state of operation with the newest ramping production on a regular basis. The Freemont factory alone is capable of producing up to 600,000 vehicles annually which are more than half of the 2021 total. The Shanghai Gigafactory can make over 400,000 per year and production is ramping globally.
Tesla is about cars and it has four sedan models in production and plans for more cars in the works. Among them are a light-duty pickup truck, final-mile delivery vehicles, and even long-haul trucks. Most importantly, the production of the core models has been ramping over the past few years delivering 1) sustained profitability and 2) over 900,000 vehicle deliveries in 2021.
GM (NYSE: GM) Swings For The Fences With EV Goals
GM (NYSE: GM) is spending up to $27 billion on EV infrastructure, R&D, and production-build-out to bolster its fleet and “put everybody in an electric vehicle”. The company has started with the launch of three models including the Blazer SUV and an all-electric Silverado pickup truck and more are on the way.
As part of the plan, GM is accelerating the roll-out of 12 new EV models that began hitting the market in early 2022. Longer-term, the company is planning to have 30 models across all four brands and price points with the goal of 1 million in annual EV sales volume by mid-decade and 5 million in annual sales by 2030.
GM’s production plans center around what it calls the Ultium Platform. The Ultium Platform is a modular battery and drive system with the flexibility for multiple applications and vehicle needs. Beyond that, GM plans to support its growing fleet of EV cars and trucks with a robust charging network that includes EvGo. GM is teamed up with EvGo, the U.S. largest charging network, with plans to triple its size to over 2700 stations by 2025.
Ford (NYSE: F) Late To The Game But Already Winning
Ford (NYSE: F) was one of the last major OEMs to embrace the BEV revolution but that was in public. The company came out swinging with EV models of iconic brands like Mustang and F-series pickup truck, the world’s #1 selling truck of all time, which makes us believe the company had been working on the project for some time. As it is, the company recently boosted its planned investment in EVs to $50 billion by 2025 which is a figure that should put it well on the path to near-100% BEV production.
Part of Ford’s plan with EV is to build an EV-specific campus in Tennesee and twin battery plants in Kentucky. The infrastructure build will help the company ramp its EV production which, based on its plans, should put them in the #1 position globally within a few years. Although the company has denied it, the new business structure which splits the ICE and BEV businesses into separate entities has Ford set up for a spin-off as well. Considering Ford trades at 6.5X its earnings and Tesla is close to 65X its earnings there is a considerable opportunity for investors in this action alone.