Wall Street and Silicon Valley have poured billions of dollars into electric vehicles and related companies by 2020, relying on their future dominance and, in many cases, fueling valuations that have little to do with the companies’ current or expected production and sales.
There is no doubt that the automotive industry is moving towards electric vehicles amid the growth of Tesla Inc. TSLA,
Decreasing prices and increasing the availability of electric vehicles or electric vehicles; the potential for technological breakthroughs that provide a cheaper, more durable and faster battery for recharging; steps in EV infrastructure and “environmentally friendly” government initiatives rooted in the US and elsewhere point the way.
And what was once an investment universe that included exclusively Tesla and a small number of fuel cell companies has grown into a subsector that combines industry, technology and transportation, with China being a major driving force both as a core market for EV manufacturers, as well as for EV demand. In total, at least $ 28 billion has been invested in public and private electric vehicle companies by 2020, according to data from CB Insights and the Dow Jones Market Data Group.
Don’t miss it: the explosion of electric vehicle financing, evaluation and trading in a single chart
“Writing is on the wall in terms of the long-term debate of EV versus the debate of internal combustion,” said John Mitchell, a partner at Blue Horizon Capital.
In many countries around the world, people will no longer be allowed to buy internal combustion engines in a short decade or two, and global automakers 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 old automakers have boosted investment in electric and autonomous vehicles, with GM going as far as promising to phase out internal combustion engines in less than 15 years. Of course, Tesla 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 has attracted the attention of large investors, and the involvement of procurement companies has become an almost commonplace.
“The EV party is just beginning, closing its seat belts,” Wedbush analyst Dan Ives said recently. The recent weakness is short-term “growing pain,” he said.
This does not mean that the transition from combustion engines to electric cars will take place quickly. Electric cars currently account for about 2% of global car sales, and estimates for a 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 moment. time.
It will take much more money to finance the transition, despite the billions that have already found their way to EV-related investments. A recent note from B. from A. Securities put a price on a future EV “revolution”, saying that financing this change is still an “extraordinary obstacle”.
Extrapolating from the relationship between Tesla’s capital increases and its ability to make vehicles, analysts B. in A. calculated that a transition to a 100% EV world would require more than $ 2.5 trillion in investment. , from companies, investors and governments around the world. the world.
The recent capital increases of EVs and affiliated companies through SPACs or blank-check companies “may be just the beginning,” they said.
“Hyper growth” in EV and renewable
Increased interest in EVs and related actions has led to concern about a balloon.
At a recent JPMorgan virtual investor conference, global research chief Joyce Chang and others told the public that they did not see “a large capital market balloon,” but that “certain pockets” of the market are facing “hyper-growth, such as vehicle and renewable electricity. ”
Bubbles, of course, are easy to notice – in retrospect. It remains to be seen whether the current influx of money and attention to EV companies, as well as autonomous vehicles and adjacent AV companies, will resemble the short-term notice given to cloud computing companies half a decade ago or the beginning of the spotlight on companies with Fuel cells, many of which – 20 years later – have not yet returned to record levels then.
Tesla Balloon: Betting on electric cars and rising SPACs have led to a new version of the dot-com boom, writes reporter Therese Poletti
JPMorgan analysts reminded the public that EV stocks, renewable energy sources and “innovation” account for a small percentage of the larger capital market, with EVs only around 2% of the S&P 500.
However, for the near future, Mitchell of Blue Horizon highlighted the technical improvement and increasing quality of electric vehicles.
“Battery life will only be extended and billions will be invested globally by all those who support the electrification of the transmission system, the infrastructure for large-scale adoption and the use of EV technology will only increase,” he said.
UBS analysts predict that global automakers’ revenues from electric vehicles will rise to $ 1.16 trillion by 2030, from $ 182 billion today.
In contrast, revenue from ICE vehicles, at $ 1.77 trillion today, will fall to $ 1.07 trillion. Software revenues will make an even larger portion of that revenue payment by 2030, at nearly $ 2 trillion.
Here’s the UBS billion chart:
A company or a business plan?
Empty check companies have been around for a long time, but they took on a bigger role in U.S. investment last year, when there were more initial public offerings through special purpose procurement companies than in all other years, Garrett Nelson said. from CFRA in a recent note.
Activity in 2021 is on track to surpass “by a wide margin” last year, and some of the largest SPAC offers are again likely to be in the “growing space of electric and autonomous vehicles (EV / AV)” again. , he said.
Some of the companies that appear are “more like business plans than profit-generating businesses,” but there is reason for optimism, Nelson said.
The CFRA analyst has chosen Fisker, Lucid Motors, which intends to go public through a SPAC merger with Churchill Capital Corp. IV CCIV,
and private electric truck manufacturer Rivian as companies that are better positioned than others.
Of course, Tesla established an advantage primarily considered to be substantial.
UBS analysts estimate that Tesla has a cost advantage of between $ 1,000 and $ 2,000 per electric vehicle over other automakers, although competition is growing. VOW Volkswagen AG,
The MEB platform, the carmaker’s building block for its electric vehicles, is already “fully competitive” with Tesla.
VW, car manufacturer no. 2 in the world, lags behind in terms of battery costs, Tesla is likely to keep its price advantage in the battery space due to its vertical integration and technological advances, they said. However, they see that large car manufacturers, such as VW, could reach an EV manufacturing cost and a margin parity in four years.
EVs, not AVs, could be the real game changer
Related to investors’ inputs to electric vehicle manufacturers is the interest generated by lidar, batteries, sensors and other components considered to be the key to autonomous vehicles.
Full autonomy has proven to be a stubborn and costly problem to solve, with full regulatory and technological barriers.
Despite the high targets, most cars on the road today offer advanced driver assistance systems, which do not differ dramatically from the systems of previous years and are still far from the game changer they are expected to have for life and savings in the near future.
For the time being, car manufacturers are mainly focused on partial autonomy and short-term ADAS offers, with electric vehicles moving towards consumer interest and regulatory momentum.
“Electric vehicles are simply a better product,” said Mitchell of Blue Horizon.