Wall Street and Silicon Valley poured billions of dollars into electric vehicles and related businesses by 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 little doubt that the auto industry will tend toward electric vehicles amid the rise of Tesla Inc. TSLA,
Decreased prices and increased availability of electric vehicles or electric vehicles; the potential for technological advances that offer a cheaper, more durable and faster rechargeable battery; advances in electric vehicle infrastructure and “green” government initiatives rooted in the United States and elsewhere show the likely path.
And what was once an investment universe comprising only Tesla and a number of fuel cell companies has become a subsector that combines industrial, technology and transportation, with China as the main engine as much as to market base of electric vehicle manufacturers as for the demand of electric vehicles. 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 Dow Jones Market Data Group.
Don’t miss it: the explosion of financing, valuation and trade in electric vehicles in a single graph
“The writing is on the wall when it comes to the long-term debate on EVs against internal combustion,” said John Mitchell, a partner at Blue Horizon Capital.
In many countries around the world, people will no longer be able to buy internal combustion vehicles 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 missed, General Motors Co. GM,
Ford Motor Co. F,
and other legacy carmakers increased investments in electric and autonomous vehicles, with GM reaching the promise of phasing out internal combustion engine vehicles in less than 15 years. Tesla, of course, joined the S&P 500 SPX index,
in 2020 after finally showing steady profits. SPX,
New companies like Nio Inc. NIO,
Nikola Corp. NKLA,
and Fisker Inc. FSR,
attracted the attention of large investors and the participation of acquisition companies for special purposes became an almost commonplace.
“The EV party is just beginning, fasten your seat belts,” Wedbush analyst Dan Ives said recently. Recent weaknesses are short-term “growth pains,” he said.
This is not to say that switching from combustion engines to electric cars is done quickly. Electric cars currently account for around 2% of global car sales and estimates for future market share range from a low-end forecast of 10% to 20% of vehicles sold in 2030 to two-thirds of the market. time.
Much more money will be needed to fund the change, despite the billions that have already found their way into EV-related investments. A recent note from B. de A. Securities put a price on a future “revolution” of electric vehicles, which said financing this change remains a “huge hurdle”.
Extrapolating from the relationship between Tesla’s capital gains and its ability to make vehicles, B. of A. analysts calculated that a change to a 100% EV world would require more than $ 2.5 trillion in investments, from companies, investors and governments around the world. the world.
Recent fundraisers of EVs and related companies through SPACs, or “blank check” companies, “may be just the beginning,” they said.
‘Hyper growth’ of electric vehicles and renewable energy
Increased interest in EVs and related actions has sparked concern about a bubble.
At a recent JPMorgan virtual investor conference, global research chief Joyce Chang and others told the audience that they did not see “a broad equity market bubble,” but that “certain pockets” of the market were experiencing a “hyper-growth, such as vehicles and renewable energy.”
Of course, bubbles are easy to spot. It remains to be seen whether the current influx of money and attention to electric vehicle companies, as well as autonomous vehicles and companies adjacent to the AV, will resemble the short-term notice that was made to electric vehicle companies. cloud computing half a decade ago or in the early years The great prominence of fuel cell companies, several of which – 20 years later – have not yet returned to the historical highs set then.
The Tesla bubble: bets on electric cars and rising SPACs have led to a new version of the boom of the point as, writes columnist Therese Poletti
JPMorgan analysts reminded the audience that shares of electric vehicles, renewable energy and “innovation” make up a small percentage of the broader equity market, with EVs only around 2% of the S&P 500.
While he has a good future, Mitchell of Blue Horizon noted the technical improvement and quality of electric vehicles.
“Battery life will only be extended and, with the billions invested worldwide by all those who support the electrification of the transport system, the infrastructure for widespread adoption and the use of EV technology it will only increase, ”he said.
UBS analysts predict that the revenues of global automakers from electric vehicles will rise to $ 1.16 trillion by 2030, from the current $ 182 million.
Conversely, revenue from ICE vehicles, at $ 1.77 trillion today, will decrease to $ 1.07 trillion. Software revenue will make an even larger portion of that revenue by 2030, at about $ 2 trillion.
Here’s the UBS chart, in billions:
A company or a business plan?
Blank check companies have been around for a long time, but last year they played a more important role in U.S. investment, when there were more initial public offerings through special-purpose acquisition companies. that every other year combined, Garrett Nelson told CFRA in a recent note.
Activity in 2021 is on track to surpass last year “by a wide margin,” and it is likely that some of the largest SPAC offerings will be back in space “growing electric and autonomous vehicle (EV / AV), “he said.
Some of the companies listed “look more like business plans than companies that generate revenue or profits,” but there are reasons for optimism, Nelson said.
CFRA analyst pointed to Fisker, Lucid Motors, which plans to go public through an SPAC merger with Churchill Capital Corp. IV CCIV,
and private electric truck manufacturer Rivian as companies that are better positioned than others.
Tesla, of course, has established a first-movement advantage widely regarded as substantial.
UBS analysts estimate that Tesla has a cost advantage of between $ 1,000 and $ 2,000 per electric vehicle over other carmakers, although competition is mounting. VOW from Volkswagen AG,
The MEB platform, the automaker’s building block for its electric vehicles, is already “fully competitive” with Tesla.
VW, the world’s No. 2 automaker, is still lagging behind in terms of battery costs, and Tesla is likely to maintain its price advantage in battery space due to its vertical integration. and technological advances, they said. Still, they see large carmakers like VW as being able to achieve 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 key to autonomous vehicles.
Full autonomy has been shown to be a stubborn and costly problem to solve, with numerous technological and regulatory hurdles.
Despite the high targets, most cars on the road today offer advanced driver assistance systems that are not very different from the systems of previous years and are still far from the game change that is expected to be for lives and economies in a country not so distant future.
At the moment, car manufacturers are mainly focusing on partial autonomy and short-term ADAS offerings, with electric vehicles pushing ahead in terms of consumer interest and regulatory drive.
“Electric vehicles are simply a better product,” Mitchell of Blue Horizon said.