Electric vehicle companies are engaged in the design, technological advancement, infrastructure development and production of vehicles powered by electric drivetrains. What is an electric vehicle stock?
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 is fast-becoming a revolution and double-digit growth opportunity for investors.
To help put this opportunity into perspective let’s look at some numbers. The EV industry has been growing at a double-digit CAGR for the last several years. It is expected to grow at a high double-digit CAGR for the next two decades, at least, and eventually dominated what is now a $3 trillion dollar industry.
IHS forecast a 52% compound annual growth rate for the 2021-2025 period with much of that growth on the front end. The forecast for 2021 is calling for a 70% increase in EV sales that will be underpinned by growth in all three major markets; the U.S., China, and Europe. By 2025, the total sales will top 12.5 million and account for 10% of the addressable car market. Beyond that, the average annual growth will continue to slow until EV takes over the bulk of new vehicle sales.
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. That’s a lot of growth and investors who get in now will be able to cash in on it.
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 have shrunk from their peaks in the earlier portion of the century they are still attractive enough to spur both consumers and manufacturers into action.
In the U.S., the newly inaugurated Biden administration is expected to unveil a swath of regulation and legislation intended to support the industry and that has the entire market moving higher. Among the many plans put forth is a switch to 100% electric within the federal fleet along with subsidies and tax credits for buyers.
China extended its policy of dual subsidies in 2020, one for the maker and one for the buyer, for another three years at least. This move is in support of China’s push to electrification and its leadership status in the global EV market. China’s EV market is expected to be 14.6% of the country’s total auto market by 2025 and that estimate could be too low. Sales of domestic EVs in China have begun to surge due to ramping production among the leading manufacturers, some of which are posting triple-digit YOY increases.
In Europe, the story is even rosier in terms of regulations. The EU has some of the strictest regulations of CO2 emissions which by themselves are driving demand for EVs. The EU enacted new regulations in 2019 that sparked a boom in the first half of the year despite the COVID-19 pandemic. The latest estimates have EV market share in the EU in the 8% to 9% range versus the 3% global average and that figure will grow over the coming year. Some regions within the union have already reached a 10% EV market share in the second half of the year after buyer incentives kicked in.
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 EV. GM, the number two producer in the U.S., only commands about 12% of the 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 the most serious of the big automakers and that is saying something. All of the major manufacturers are planning or in-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 avenues for growth into 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?
The SPAC Attack; An IPO By Another Name?
2020 was a big year for EV startups with a half dozen or more companies coming to market. Most chose to use a lesser-known mode of entry called the SPAC or special purpose acquisition company for one overreaching reason; speed. A SPAC is essentially a publicly traded management company with no underlying business that is set up by a wealth management firm or a bank with the intention of “acquiring” a business to operate. The SPACs are usually created with a target in mind which in this case are EV start-ups. Some of the company’s that IPOd via SPAC have begun production but most expect to begin in 2021 or 2022 at the latest
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. That’s why batteries are so important for the EV market. We don’t have any other way of realistically powering an electric vehicle without them. And batteries are the Achilles heel of the industry too. Batteries have a limited range compared to gas engines, they’re heavier, they’re more expensive, and they don’t last as long.
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.
Aside from the cost of the batteries, there is availability to consider as well. Many of the EV manufacturers are limited by the number of batteries they can buy or make. That is why so many EV and battery manufacturers are ramping up the 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
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 Byd Co, Panasonic, SK Limited, and LG Chem round out the top five in terms of gross production but there are dozens more.
The Leading EV Manufacturers
Tesla (NASDAQ: TSLA) - More Than Just Electric Cars
The Tesla 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 is in the process of building Giga-1, the company’s first of five planned gigafactories, so-called for their immense size. Giga-1 is located in the desert of Nevada and will be the largest building by footprint and second-largest by volume once completed. It is built in alignment with true north to aid in mapping the facility and aligning the solar panels. The building is designed to be completely energy self-sufficient once completed and is well on the way to reaching that goal now. In terms of battery production, it will be the single largest EV battery manufacturing facility in the world once completed.
But don’t forget, 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 500,000 vehicle deliveries in 2020.
BMW (ETR: BMW) - Is Quietly Making EV A Priority
BMW’s EV production is still small in comparison to Tesla, less than half in fact, but the company has big plans. The company sees EV as a pillar of its growth strategy and views all lines and models as “electrifiable”. The company is aiming for EV to account for 15% to 25% of its revenue by 2025 and it is already well on the way. Global sales of EV rose by 32% in 2020 and were about 8% of the total. Spurred by the EU’s tough CO2 regulations, BMW’s sales of hybrid and fully electric vehicles already account for 15% of its share in that region.
BMW sold nearly 193,000 hybrid and fully electric vehicles in 2020 and the plans for 2021 are bold. The guidance at the end of 2020 called for a 100% increase in sales of fully electric vehicles over the next year, +50% across the entire electrified lineup, with an accelerated timeline for new models. BMW currently offers 13 hybrid and fully-electric models with plans to expand to 25 by 2023. Previous press material suggested there could be 9 new models in the same time frame.
GM (NYSE: GM) Is Swinging For The Fences With EV
GM’s EV lineup is limited to a single, and soon-to-be-retired, model but it is still able to command a top-ten place in terms of total units sold globally. But don’t let that fool you. GM may have the boldest plans of any major manufacturer and could soon claim the number one spot. The company 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”.
As part of the plan, GM is accelerating the roll-out of 12 new EV models that will begin hitting the market as early as late 2021. 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.
Hyundai-Kia (OTCMKTS: HYMLF) Is A Player In The EV Market
Hyundai-Kia is ranked 3rd in global sales and putting up a good fight. The company sold more than 60,700 EVs worldwide in 2020 and aims to up that by 60% or more in the coming year. To meet the goal Hyundai-Kia is planning to expand its lineup of EV models as well as begin production of its battery and powertrain combination. Taking production to the next step like this will help the company save time and money and ultimately result in higher production at a lower margin.
Hyundai says 2021 will be a transformational year. This is the year it will turn into a Smart Mobility Solution Provider and concentrate on future business strategies including electrification, UAM, robotics, and hydrogen fuel-cell systems. In particular, the company plans to cement EV market leadership with its first dedicated EV model IONIQ 5 which is due out later in the year.
While the company’s plans are exciting, Hyundai-Kia’s real claim to fame in the EV market is a highly-prized partnership with consumer electronics leader Apple (NASDAQ: AAPL). The deal is still in the early stages but centers around the development of a self-driving car presumably powered by an i-platform. The reports suggest that battery production was included in the deal, a detail that fits nicely with Hyundai’s ultimate goals.
