Beyond investing in Tesla Inc (Nasdaq: TSLA), the beleaguered auto company, investors who are interested in the electric vehicle market face many hurdles in choosing assets.
Investing in a pure play for the electric vehicle industry remains challenging because Tesla is the only manufacturer to focus solely on these vehicles. While Tesla garners the most brand recognition, the stock remains volatile, keeping some investors at arm’s length.
The other hurdle is that the global electric vehicle market rose only by 1 percent based on the number of cars sold in the past five years, says K.C. Ma, director of the Roland George investments program at Stetson University in Deland, Florida.
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Part of the issue is that profitability for the automakers will not occur for many years and the prolonged low oil prices may have put a damper on sales, he says.
The EV market. The global electric vehicle market sold 775,000 units in 2016 with the U.S. market selling 159,333 units. Tesla sold 46,550 vehicles in 2016, which represents 29 percent of the U.S. electric vehicle market share.
Competition remains fierce as automakers are rolling out the latest models, including Tata Motors’ (TTM) Jaguar i-Pace, Nissan’s Leaf, Hyundai’s Kona & Niro EVs, Mercedes’ EQC, Volvo’s first EV, General Motors Co.’s (GM) first EV from Buick, BMW’s Mini EV, Honda Motor Co.’s (HMC) new EV and Audi’s eTron SportsBack.
Those names will be fighting for the other 70 percent of the U.S. electric vehicle market and remaining 80 percent of the global electric vehicle market, Ma says.
One method of analyzing the investment of electric cars by shareholders is to divide a company’s market capitalization by the number of cars sold. Under that analysis, the level of market cap per vehicle should be determined by the automaker’s pricing power and the growth in the number of electric vehicles sold.
Using that calculation, Tesla’s shareholders have paid over $500,000 a car, which is also 20 times of BMW, 33 times of Toyota, and a whopping 70 times of the “little guys” or GM, Ford and Volkswagen, Ma says.
Even though changes continue in this nascent industry, profitability remains several years away even as investors seek exposure in the electric vehicle industry.
“I am personally not optimistic about the near-term future of electric vehicles,” he says.
UBS analyst Patrick Hummel remains more bullish on the market and raised the firm’s global electric vehicle sales forecast from 14.2 million to 16.5 million in 2025 because of higher demand in China and higher 2017 sales in several key markets. Parity on prices for electric vehicles compared to traditional gasoline or diesel cars should occur by 2025.
“Our new forecasts imply 16 percent electric vehicle sales penetration in 2025, or almost every sixth car sold globally,” Hummel wrote in a November report. “We expect every third car sold in Europe to be electric by then. In other words, almost every sixth car sold globally is likely to be electric by then. We expect EV penetration to accelerate after 2020 on rapidly decreasing technology costs.”
Investing in the automakers remains a viable option. While consumers view BMW’s 3-series as the closest competitor to Tesla’s Model 3, BMW is the brand which is “most exposed to Tesla’s success or failure,” he said based on their survey of 10,000 consumers in the six largest car markets.
“Looking at future EV launches, existing premium brands are still preferred over Tesla and the lack of a dense dealer network could put Tesla at disadvantage, our survey shows,” Hummel wrote.
Established premium brands need to launch competitive models, he says.
“The established brands Mercedes, Audi, Porsche and Volkswagen above all, will bring battery electric vehicles to the market by 2020 that will be competitive with Tesla’s product range as far as performance and range is concerned, while offering possibly a higher build quality and a dense dealer/after sales network – the latter of which is seen as an important purchasing decision factor.”
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The technology in electric vehicles continues to improve as the range per charge ramps up and mass market electric vehicles that will be launched in the next 24 months can drive for 250 to 300 miles per charge. The build-out of charging infrastructure is also accelerating with a “wave of investments in new charging infrastructure – the lack of sufficient charging coverage is still a key reason for consumers not to buy an EV,” the UBS report said.
For the past 10 years, ABB has worked on developing technology and data that can be used in electric vehicles and fast chargers. As the technology of the converters, motors and connection systems in the vehicles and in the fast chargers improved, public transport buses in Switzerland, Sweden, U.K., Belgium, Luxembourg, France, Canada, Singapore, Germany and Norway can be charged along the normal stops of their route.
Electric buses in Switzerland can be charged in 20 seconds. Instead of charging a bus to its full capacity, the strategy has shifted to powering buses when they are normally stopped, which means passengers may not even be aware that the buses are even being charged.
It’s not just buses that are reaping the advantage of the shift in technology. The fast charger for consumer vehicles in Davos, Switzerland, means drivers only have to wait nine to 12 minutes. Fast-charging stations are growing in popularity as ABB has installed 6,500 in 57 countries for cars and fleets of buses and trucks and plans to add its technology for U.S. fast charging stations.
The technology is getting better. Auto manufacturers are fine-tuning the technology in electric vehicles as many of them are seeking better performance, including 10 teams who are testing it out on racetracks by participating in the ABB Formula-E Championship, which was launched on the grounds of the Olympic Park in Beijing in 2014.
“You can drive with the same performance or better with electric vehicles,” says Greg Scheu, ABB president of the Americas region. “We are seeing more of a middle market as all the car manufacturers are designing electric vehicles, which are becoming more affordable, but it is crucial that the appropriate infrastructure is in place.”
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The trend of shifting to electric vehicle and hybrids benefits also the miners, battery materials makers and auto suppliers with power management solutions, Dan Scott, director of investment strategy and research at Credit Suisse, says in a 2016 report.
“Lastly, though at a nascent stage, companies investing in charging infrastructure (charging stations) are expected to benefit from the EV boom,” he says.