Wall Street and Silicon Valley poured billions of dollars into electric vehicles and related companies in 2020, betting on their future dominance and, in many cases, fueling valuations that have little to do with companies’ current or expected production and sales.
There is no doubt that the automotive industry is turning to electric vehicles amid the rise of Tesla Inc. TSLA,
Declining prices and increasing availability of electric vehicles, or EVs; the potential for technological innovations that offer a cheaper, longer-lasting, faster-charging battery; advances in EV infrastructure and “environmentally friendly” government initiatives taking root in the United States and elsewhere show the likely path.
And what was once an investment universe comprising only Tesla and a handful of fuel cell companies has flourished in a sub-sector that combines industries, technology and transport, with China as a major driving force both as a base market for car manufacturers. EV and EV demand. In total, at least $ 28 billion was invested in public and private electric vehicle companies in 2020, according to data from CB Insights and Dow Jones Market Data Group.
Don’t miss: the explosion in financing, valuation and trading of electric vehicles on a graph
“The writing is on the wall in relation to the long-term EV debate versus internal combustion,” said John Mitchell, a partner at Blue Horizon Capital.
In several countries around the world, people will no longer be allowed to buy vehicles with an internal combustion engine within a decade or two, and global car manufacturers have realized that “the transition to electrified vehicles is the only way to compete” , he said .
Not to be outdone, General Motors Co. GM,
Ford Motor Co. F,
and other legacy carmakers have increased investments in EVs and autonomous vehicles, with GM reaching the point of promising to phase out vehicles with an internal combustion engine in less than 15 years. Tesla, of course, has joined the S&P 500 SPX index,
in 2020, after finally showing consistent profit. SPX,
New companies, like Nio Inc. NIO,
Nikola Corp. NKLA,
and Fisker Inc. FSR,
it attracted the attention of large investors and the involvement of special purpose acquisition companies has become almost common.
“The EV party is just beginning, put your seat belts on,” said Wedbush analyst Dan Ives recently. The recent weakness is short-term “growth pains”, he said.
This does not mean that the switch from combustion engines to electric cars will take place quickly. Electric cars currently account for about 2% of global car sales, and estimates for future market share range from a low-end forecast of 10% to 20% of cars sold by 2030 to two-thirds of the market by that time. .
Much more money will be needed to finance the exchange, despite the billions that have already found their way into EV-related investments. A recent note from B. of A. Securities put a price tag on a future EV “revolution”, saying that funding for this change is still a “tremendous obstacle”.
Extrapolating from the relationship between Tesla’s capital increases and its ability to make vehicles, B. of A. analysts calculated that a move to a 100% EV world would need more than $ 2.5 trillion in investments, coming from from companies, investors and governments around the world.
Recent capital withdrawals by EV and related companies through SPACs, or “blank check” companies, “may just be the beginning,” they said.
‘Hyper growth’ in EV and renewables
Increased interest in EV and related actions has led to concerns about a bubble.
At a recent JPMorgan virtual investor conference, global research chief Joyce Chang and others told the public that they were not seeing “a broad bubble in the stock market”, but that “certain pockets” of the market were experiencing “hypergrowth, such as the electric vehicles and renewables. ”
Bubbles, of course, are easy to spot – in hindsight. It remains to be seen whether the current flow of money and attention to EV companies, as well as autonomous vehicles and companies adjacent to AV, will be similar to the short notice paid to cloud computing companies half a decade ago, or at the beginning. ryts at fuel cell companies, several of which – 20 years later – have not yet returned to the records then set.
The Tesla bubble: electric car bets and the rise of SPACs have led to a new version of the dot-com boom, writes columnist Therese Poletti
JPMorgan analysts reminded the public that EVs, renewables and “innovation” stocks represent a small percentage of the broader stock market, with EVs only around 2% of the S&P 500.
Looking ahead, however, Mitchell of Blue Horizon pointed to the increasing quality and technical improvements for EVs.
“The battery life will only be extended and with the trillions being invested globally by all those who support electrification of the transport system, the infrastructure for adoption and widespread use of EV technology will only increase,” he said.
Analysts at UBS predict that revenues from global automotive manufacturers with EVs will change to $ 1.16 trillion in the year 2030, from $ 182 billion today.
On the other hand, ICE vehicle revenue, now at $ 1.77 trillion, will decline to $ 1.07 trillion. Software revenues will account for an even bigger share of that revenue pie by 2030, almost $ 2 trillion.
Here is the UBS chart, in billions:
A company or business plan?
Blank check companies have been around for a long time, but they took on a bigger role in U.S. investments last year, when there were more initial public offerings through special-purpose takeover companies than all other years combined, said Garrett Nelson from CFRA in a recent note.
Activity in 2021 is on track to exceed last year’s “by a wide margin”, and some of SPAC’s biggest deals are likely to be in the “booming space for electric and autonomous vehicles (EV / AV),” he said.
Some of the emerging companies “look more like business plans than businesses that generate revenue or profit,” but there are reasons for optimism, Nelson said.
The CFRA analyst highlighted Fisker, Lucid Motors, which plans to go public through a merger between SPAC and Churchill Capital Corp. IV CCIV,
and private electric truck manufacturer Rivian, companies that are better positioned than others.
Tesla, of course, has established a pioneer advantage widely seen as substantial.
UBS analysts estimate that Tesla has a cost advantage of about $ 1,000 to $ 2,000 per electric vehicle over other automakers, although competition is increasing. Volkswagen AG’s VOW,
The MEB platform, the building block of the automaker for its electric vehicles, is already “totally competitive in terms of costs” with Tesla.
VW, the world’s second largest automaker, is still lagging behind in terms of battery costs, with Tesla likely maintaining its price advantage in the battery segment due to its vertical integration and technological advances, they said. Still, they see that major traditional automakers, such as VW, would be able to achieve EV manufacturing cost and margin parity in four years.
EVs, not AVs, can be the real game changer
Related to the inflows of investors to manufacturers of electric vehicles is the interest generated by dealing, batteries, sensors and other components considered as key for autonomous vehicles.
Total autonomy has proved to be a stubborn and costly problem to solve, with many regulatory and technological obstacles.
Despite the high goals, most cars on the road today offer advanced driver assistance systems that are not drastically different from previous years’ systems and are still far from the game changer they are expected to be for lives and savings in one distant future.
For now, automakers are mainly focusing on partial autonomy and ADAS offerings that can be commercialized in the short term, with EVs advancing in terms of consumer interest and regulatory pressure.
“EVs are simply a better product,” said Mitchell of Blue Horizon.