Placing big bets on the transition to electric vehicles, carmakers are investing, battery makers are building, and suppliers are shifting to software.
The electric vehicle (EV) industry is taking on giant proportions, firing the ambitions of established and newer car manufacturers, technology firms and makers of batteries, components and software. Currently more than 250 firms are making electric motors, 47 battery factories are being built, and battery technology is transforming. Anjan Kumar of consulting firm Frost & Sullivan estimates that total new EV battery capacity will grow from 88 gigawatt hours in 2019 to 1,400 gigawatt hours in 2025.
The market potential of an electrified automotive sector appears limitless, especially to investors. Listed carmakers that make only electric cars now have a total market capitalisation exceeding $400 billion. Despite producing barely 400,000 vehicles annually, the EV industry (including battery makers) is worth at least $670 billion. This is nearly three-fifths as much as traditional carmakers, which put out 86 million cars a year.
While car sales overall are expected to decline by 25% in 2020 due to the pandemic, the number of EVs is expected to rise as emissions regulations get tougher, batteries get cheaper, and the variety of available models widens. According to The Economist, three in every 100 cars sold next year will be electric or hybrid, and this share could rise to 20-25% by 2030.
Tesla, which Adam Jonas of Morgan Stanley calls the “apex predator” of the electric vehicle industry, boasts numerous advantages. It has been manufacturing EVs at scale longer and selling more than any other carmaker. In Kumar’s view, the company is two to three years ahead in battery technology. At its “Battery Day” event last month, Tesla unveiled its new 4680 cylindrical battery cell and “structural battery pack”, which integrates the battery pack into the car’s body. The 4680 will store five times more energy, increasing range by about 16%. Both will be featured in the Model S Plaid, scheduled for late 2021.
There is still a place for others in the electric vehicle industry, including traditional carmakers and suppliers. Chinese manufacturers have been particularly successful. About half of all electric vehicles worldwide are sold in China. While the government there has championed the industry, big Western carmakers have more obstacles. This has not diminished their determination. Kumar estimates that 60% of big carmakers’ R&D spending now goes to EVs, and their investment could grow to $500 billion over the next five years, according to Morgan Stanley.
VW, for example, plans to invest $71 billion in electric cars and digitisation by 2025. The German carmaker is also morphing into a software firm, and sees itself developing 60% of its own software by 2025. Also stepping up technology development is Daimler, which has teamed with chipmaker Nvidia to develop an automotive chip and software platform. Some automotive industry heavyweights are creating distinct units, such as GM’s Cruise self-driving arm, BMW’s iVentures and Toyota’s Mobility Foundation.
Big carmakers, including GM and Ford, and technology giants such as Apple and Amazon as well as China’s Baidu, Tencent and Alibaba are also investing heavily in startups. All are vying to close the gap with Tesla.
