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Wall Street and Silicon Valley invested billions of dollars in EVs and associated businesses in 2020, betting on their future dominance and, in many cases, fueling valuations that bear little relation to current production and sales. or expected from companies.
There is no doubt that the auto industry has a tendency to turn to electric vehicles amid the rise of Tesla Inc. TSLA,
Lower prices and increased availability of electric vehicles or electric vehicles; the potential for technological breakthroughs that offer a cheaper, longer lasting and faster battery to recharge; advances in EV infrastructure and “green” government initiatives taking root in the United States and elsewhere point the likely path.
And what was once an investment universe comprising only Tesla and a handful of fuel cell companies has grown into a sub-sector combining industry, technology and transportation, with China being a major driver both as as the base market for EV manufacturers and for 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.
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“The writing is on the wall when it comes to the long-term debate between electric vehicles and internal combustion,” said John Mitchell, partner at Blue Horizon Capital.
In several countries around the world, people will no longer be allowed to buy internal combustion engine vehicles within a decade or two, and global automakers have realized that “the transition to electrified vehicles is the only way to compete. “, did he declare. .
Not to be outdone, General Motors Co. GM,
Ford Motor Co. F,
and other traditional automakers have stepped up their investments in electric vehicles and autonomous vehicles, with GM going so far as to promise to phase out vehicles with internal combustion engines in less than 15 years. Tesla, of course, joined the S&P 500 SPX index,
in 2020 after finally showing consistent benefits. SPX,
New companies such as Nio Inc. NIO,
Nikola Corp. NKLA,
and Fisker Inc. FSR,
has attracted the attention of large investors and the involvement of specialist acquisition companies has become almost common.
“The EV party has only just begun, fasten the seat belts,” Wedbush analyst Dan Ives said recently. The recent weaknesses are short-term “growing pains”, he said.
That’s not to say that the switch from combustion engines to electric cars will happen quickly. Electric cars currently account for around 2% of global auto sales, and estimates for future market share vary from a low-end forecast of 10% to 20% of cars sold by 2030 to two third of the market by then. time.
It will take a lot more money to fund the change, despite the billions that have already been put into EV investments. A recent note from B. de A. Securities put a price on a future electric vehicle “revolution”, saying that funding this change is still a “huge hurdle”.
Extrapolating from the relationship between Tesla’s capital increases and its ability to manufacture vehicles, B. of A analysts calculated that a move to a 100% EV world would require more than $ 2.5 trillion. of investments, from businesses, investors and governments around the world.
The recent capital increases of EV and related companies through PSPCs, or “blank check” companies, “may be just the beginning,” they said.
“ Hyper growth ” in EVs and renewable energies
The increased interest in electric vehicles and related stocks has raised concerns about a bubble.
At a recent JPMorgan investor virtual conference, global research chief Joyce Chang and others told the audience they didn’t see “a large stock market bubble,” but that “some pockets” of the market were experiencing “hyper growth, such as electricity, vehicles and renewable energies. ”
Bubbles, of course, are easy to spot – in hindsight. It remains to be seen whether the current influx of money and attention to EV companies, as well as autonomous vehicles and AV-adjacent businesses, will resemble the short-lived notice given to cloud companies. half a decade ago, or early Spotlight on fuel cell companies, many of which – 20 years later – have yet to return to record levels set at the time.
The Tesla bubble: bets on electric cars and the rise of PSPCs have led to a new take on the dot-com boom, writes columnist Therese Poletti
JPMorgan analysts reminded the audience that EV, renewable, and “innovation” stocks represent a small percentage of the broader stock market, with EVs making up only about 2% of the S&P 500.
However, for the future, Mitchell of Blue Horizon pointed out the increasing quality and technical improvements in electric vehicles.
“Battery life will only lengthen and with the trillions invested around the world by all who support the electrification of the transportation system, the infrastructure for widespread adoption and use of EV technology will only increase. that to increase, ”he said.
UBS analysts predict global automakers’ revenues from electric vehicles will grow to $ 1.16 trillion by 2030, from $ 182 billion today.
Conversely, ICE vehicle revenue, at $ 1.77 trillion today, will decline to $ 1.07 trillion. Software revenues will represent an even larger share of this revenue pie by 2030, at nearly $ 2 trillion.
Here is the UBS chart, in billions:
A company or a business plan?
Blank check companies have been around for a long time, but played a larger role in U.S. investment last year, when there were more initial public offerings through special purpose acquisition companies than all other years combined, CFRA’s Garrett Nelson said in a statement. recent note.
Activity in 2021 is set to ‘far’ overtake last year, and some of the biggest PSPC deals are expected to once again be in the ‘burgeoning electric and autonomous vehicle (EV / AV) space. “, did he declare.
Some of the companies that appear “look more like business plans than businesses that generate income or profit,” but there is reason to be optimistic, Nelson said.
The CFRA analyst singled out Fisker, Lucid Motors, which plans to go public through a SPAC merger with Churchill Capital Corp. IV CCIV,
and private electric truck maker Rivian as better positioned companies than the rest.
Tesla, of course, established a first-come advantage widely viewed as substantial.
UBS analysts calculate that Tesla has a cost advantage of around $ 1,000 to $ 2,000 per electric vehicle over other automakers, although competition is mounting. Wish from Volkswagen AG,
The MEB platform, the automaker’s cornerstone for its electric vehicles, is already “fully cost competitive” with Tesla.
VW, the world’s No.2 automaker, still lags behind in battery costs, with Tesla likely to retain its price advantage in the battery space due to its vertical integration and technological advancements, said. they stated. Still, they see the big, traditional automakers like VW would be able to hit EV manufacturing cost and margin parity in four years.
EVs, not AVs, could be a game-changer
The interest in lidar, batteries, sensors and other components considered the key to autonomous vehicles is linked to the influx of investors to electric vehicle manufacturers.
Full autonomy has proven to be a stubborn and costly problem to solve, with many regulatory and technological hurdles.
Despite ambitious goals, most cars on the road today offer advanced driver assistance systems that are not drastically different from systems of previous years and that are still far from being a game-changer that they should be. for lives and savings in a not-so-different country. far future.
For now, automakers are mainly focusing on partial range and ADAS offerings that may be marketed in the short term, with electric vehicles taking the lead in terms of consumer interest and regulatory push.
“Electric vehicles are just a better product,” said Mitchell of Blue Horizon.
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