Trystan Casey
The electric vehicle revolution is well underway, with global sales growing by 80% in 2021. This shift from traditional engines to electric vehicles (EVs) is driven by consumers' desire to reduce their environmental impact, and is supported by government regulations and investments from automotive giants. As the EV market continues to expand, investors are presented with a multitude of opportunities across various industries. From investing in the vehicles themselves to exploring adjacent sectors, such as battery technology and charging infrastructure, the electric vehicle revolution offers diverse investment prospects. However, it is essential to carefully consider the timing and policy direction to ensure successful investments in this rapidly evolving market.
| Characteristics | Values |
|---|---|
| Electric vehicle sales growth | 80% in 2021 |
| Investment in electrification | $170 billion by Toyota and Volkswagen |
| Reduction in global CO2 emissions | 23% contributed by the transportation sector |
| EV sales as a percentage of global car sales | 7.2% in 2021 |
| Country with the highest rate of EV sales | Norway |
| Number of public EV chargers in the UK | 60,000 |
| Government target for public EV chargers in the UK by 2030 | 300,000 |
| Percentage of UK vehicle owners relying on public EV chargers | 40% |
| Percentage of consumers believing EVs are beyond their budget | 63% |
| Year by which cost parity between EVs and ICE vehicles is expected | 2026 |
| Companies traded on the US stock market | Tesla, Ford, and GM |
| Companies with multi-billion-dollar investments in EVs and batteries | Ford and General Motors |
| Percentage of global car market represented by EVs | 5% |
| Number of plug-in vehicles on UK roads as of July 2024 | 1.9 million |
| Companies with their own EV models | BAIC, Nissan, Toyota, Renault, and BMW |
| Companies with exposure to electric vehicle themes | Scottish Mortgage Investment Trust and Rathbone Global Opportunities |
| Companies with holdings in the EV space | Nvidia and Infineon Technologies |
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What You'll Learn
Investing in the cars themselves
Electric vehicles (EVs) are becoming increasingly popular, with global sales growing by 80% in 2021. Despite this, they still only accounted for 7.2% of global car sales in 2021, meaning there is plenty of room for growth in the industry.
One way to invest in the EV revolution is through the cars themselves. This is a growing market, with demand from consumers likely to increase due to new government regulations and the desire to reduce emissions. For example, the UK government has pledged to bring forward the phase-out date for new petrol and diesel cars to 2030. As a result, upgrading to electric vehicles will become an inevitable choice for many.
When investing in EV cars, it is important to consider the different types of vehicles available. While passenger vehicles have led the charge, the commercial sector is also making strides, with light goods vehicles (LGVs) seeing a notable increase in EV adoption. The second-hand EV market is also worth considering, as it has recently seen a boom in the UK, with used EVs becoming more affordable and accessible to a broader audience.
In terms of specific car manufacturers, there are several options to consider. Tesla, Ford, and GM are all traded on the US stock market and have been major players in the EV space. However, Tesla's market share has been decreasing, while competitors like Hyundai, Mercedes, and BMW have been gaining ground. Chinese EV producers are also becoming increasingly competitive, with companies like BYD, the world's biggest EV maker, expanding into new markets.
Overall, investing in EV cars offers a potential opportunity to get involved in a growing market. By considering the different types of vehicles, consumer demands, and the performance of various car manufacturers, investors can make informed decisions about where to allocate their capital in the EV car market.
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The second-hand EV market
Used EV prices have also been experiencing a notable decline. In 2024, Edmunds reported a 20.5% year-over-year drop in EV values, compared to a 6.8% decrease in the overall used car market. This decline in prices is influenced by various incentives and subsidies offered by automakers to promote new-EV sales, which has a trickle-down effect on the used EV market. Additionally, the $4,000 used vehicle tax credit further contributes to the decreasing prices.
The decreasing prices of used EVs have made them more affordable to a wider range of potential buyers, including first-time EV owners. This shift has erased the "premium" tag once associated with EVs, making them more accessible to those with budget constraints.
Despite the overall decline in used EV prices, certain factors can influence their value. For instance, used Teslas tend to hold their value better than most luxury cars, even with price cuts and depreciation. However, this varies with the model year, as older models may not retain their value as well as newer ones.
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Lithium for batteries
Lithium-ion (LiOn) batteries are the most common type of rechargeable batteries on the market today. They are used in a range of devices, from smartphones and laptops to electric vehicles (EVs). As the demand for EVs increases, so too will the demand for lithium-ion batteries. This presents a lucrative investment opportunity for those looking to get involved in the electric vehicle revolution.
The cost of producing lithium-ion batteries is high, and this is something that manufacturers are working to address. For example, companies are experimenting with adding additional ingredients to increase the battery's effectiveness and longevity while reducing the price tag. Lithium-cobalt (LiCoO2) arrangements are now found in many cell phones, laptops, digital cameras, and wearable products. Lithium-manganese (LiMn2O4) cells are used for power tools, medical instruments, and electric powertrains, which are commonly found in electric vehicles.
There are also several new technologies in the research phase, such as lithium-sulfur and silicon-carbon cells, which are not yet commercially viable. Another exciting development is lithium-air (Li-Air) batteries, which could allow for much greater energy storage capacity—up to 10 times more than a typical LiOn battery.
Some companies that manufacture lithium-ion batteries include A123 Systems Inc., BYD Company Ltd., CBAK Energy Technology Inc., Hitachi Chemical Co., Johnson Controls International Plc., Microvast Inc., Samsung SDI Co. Ltd., and Tianjin Lishen Battery Joint-Stock Co. For those looking to invest in lithium for batteries, these companies could present an opportunity to get involved in the EV revolution.
It is worth noting that lithium is an unstable substance and must be carefully handled and stored. This adds an extra layer of complexity and cost to the production of lithium-ion batteries. However, with the right safety measures in place, lithium-ion batteries can be a safe and effective power source for electric vehicles.
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Semiconductor chip suppliers
The electric vehicle (EV) market is expected to grow more than 30% annually until 2030, driven by stricter regulations, increasing demand, and the global push to reduce emissions. This presents a range of investment opportunities, including in the semiconductor chip suppliers that are critical to the EV ecosystem.
Semiconductor chips are integral to the EV industry, with current-generation vehicles containing between 1,000 to 3,500 semiconductors each. This number is expected to increase as consumers demand more advanced safety systems, vehicle connectivity, and electrification. As a result, the automotive industry has become the third-largest semiconductor end-market, and it is predicted to continue driving semiconductor demand over the next decade.
STMicroelectronics, headquartered in Geneva, Switzerland, is the world's largest producer of silicon carbide chips. The company holds a significant market share in the automotive and industrial chip sectors, with its products widely used in automotive electronics, safety systems, engine control, and infotainment systems. Despite a recent quarterly net revenue decrease of 3.2%, STMicroelectronics remains a key player in the semiconductor industry, accounting for approximately half of its business in the automotive sector.
Renesas Electronics, headquartered in Tokyo, Japan, is another leading semiconductor solutions provider. The company has a global presence with multiple research and development centers, manufacturing facilities, and sales terminals. Renesas offers a diverse product line, including microcontrollers, analog and power devices, memory, and sensors, among others. They are one of the largest microcontroller suppliers globally, with applications in the automotive, industrial control, smart home, and medical device sectors. Renesas actively engages in R&D for new technologies, including AI chips and 5G communication solutions.
Investing in semiconductor chip suppliers like STMicroelectronics and Renesas Electronics provides an opportunity to capitalize on the growing demand for semiconductors in the EV market. These companies are well-positioned to benefit from the increasing reliance on chips for vehicle safety, connectivity, and autonomous driving technologies. Additionally, Dutch firm ASML, a key supplier to major semiconductor chip suppliers, is critical in enabling innovation and has strong pricing power, making it an attractive investment option.
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Public charging infrastructure
The success of the transition to electric vehicles (EVs) depends not only on the adoption of vehicles but also on the accessibility of charging infrastructure. In the UK, the number of public chargers has increased fivefold, with private funding playing a significant role. However, with only 60,000 public chargers available, the infrastructure falls short of the government's target of 300,000 by 2030.
To meet the increased electricity demand from EVs, new investments in grid infrastructure may be required. Forecasting when and where this power is needed is a complex task, and managing the combination of access to land, people, and power infrastructure is essential. Commercial fleet hubs can provide certainty to investors during the early stages, and forming collaborative relationships with public sector data providers and utilities is crucial.
When considering public charging infrastructure investments, locations such as airports, stations, car parks, business parks, and major office spaces are ideal. These sites offer guaranteed demand and provide users with the opportunity to fully recharge their vehicles using fast-charging points. Additionally, these locations can offer a fleet of stand-by batteries for balancing services, resulting in higher revenue generation.
Overall, public charging infrastructure is a vital component of the electric vehicle revolution, and investments in this area can help accelerate the transition to EVs and support the development of a robust supply chain.
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Frequently asked questions
There are many ways to invest in the electric vehicle revolution. You can invest in the cars themselves or in companies that are leading the market, such as Tesla, Ford, and GM. You can also look at semiconductor-related firms like Infineon Technologies and ASML, which are critical in enabling innovation and development in the electric vehicle space.
If you're looking for a fund that gives you exposure to the electric vehicle theme, you can consider the Scottish Mortgage Investment Trust, which invests in many technology stocks that are leading the market. For passive exposure, you can look at the Vanguard FTSE All-World UCITS ETF, which holds both Tesla and Nvidia among its top 10 holdings.
One of the challenges to investing in the electric vehicle revolution is uncertainty around policy direction and timing. Investors also need to be mindful of the competition in the space, as there are many new and legacy manufacturers vying for market share.
The electric vehicle market is growing rapidly. In 2021, global electric vehicle sales grew by 80%, and companies invested $170 billion in electrification. However, electric vehicles still only accounted for 7.2% of global car sales in 2021, so there is plenty of room for growth.
The success of the electric vehicle transition hinges not only on the adoption of vehicles but also on the accessibility of charging infrastructure. Public charging is a critical area for investment, and investors need to consider the location and demand for charging stations to de-risk their investments.
