Plugging Into The Future: The Electric Vehicle Market Outlook

At Thursday’s presidential debate, former Vice President Joe Biden pledged to transition the U.S. economy “away from the oil industry.” This goal cannot be achieved without the electrification of road transport, which accounted for almost 70% of America’s oil consumption in 2019. Market forces and green government policies are accelerating this shift in the United States and around the world.

The electrification of transport is now one of the major trends of the 21^st century and the markets are reacting: the 700% year-to-date surge in China-based electric carmaker NIO stock value and Tesla’s
TSLA
415% growth since January shows that investor excitement around electric vehicles is building.

Global EV sales rose a dramatic 65% from 2017 to 2018, for a total of 2.1 million vehicles, with sale figures steady through 2019. The subsequent outbreak of the coronavirus pandemic, however, resulted in a 25% decline in EV purchases during the first quarter of 2020.

Despite these setbacks, EV demand is again expected to rise according to Bloomberg New Energy Finance (BNEF), which sees improved batteries, more readily available charging infrastructure, new markets, and price parity with internal combustion engine (ICE) vehicles as major drivers. The study finds that EVs hit 10% of global passenger vehicle sales by 2025, rising to 28% in 2030 and 58% in 2040.

EV sales in the United States outpaced the international trend, rising 80% from 2017 to 2018. While the industry’s growth slowed in 2019 as a result of the Trump administration’s phaseout of the federal tax credit and loosening of fuel-economy standards, investors are optimistic. General Motors
GM
announced a plan to invest $2 billion into six domestic assembly plants dedicated to manufacturing EVs, and has since unveiled its all new electric hummer.

“These investments underscore the success of our vehicles today, and our vision of an all-electric future,” said Chairman and CEO Mary Barra. Given General Motors’ previous lobbying against California’s zero-emission standards can be compared to the Tobacco Industry shifting overnight from attacking to investing in legal marijuana. Presidential candidate Joe Biden has made net-zero emissions by 2050 part of his campaign platform, with an annual investment of $500 billion toward this goal, a portion of which will support EV production and charging infrastructure.

Nevertheless, some remain skeptical of EVs and their potential in the American market. Success in the short term will depend on tax credits, fluctuations in oil prices, the results of the presidential election, and the speed of the global COVID-19 recovery.

China accounts for the largest share of global EV sales and plans to expand further as it reduces energy imports, addresses its poor urban air quality, and attracts investors into its domestic auto industry. Demand for electric vehicles in China reached 125,000 units in September, a startling mid-pandemic jump of 99.6% from the previous year.

Tesla was the first foreign carmaker permitted to open a factory in China without a Chinese majority partner. After opening its gigafactory in Shanghai, the company became the largest seller of EVs in the country, cutting prices multiple times to qualify for government subsidies. Tesla has recently outperformed Wall Street expectations, bringing in Q3 earnings of $8.77 billion.

Luxury electric carmaker NIO – a subsidiary of the communist state-owned corporation JAC Motors – is widely viewed as a potential challenger to Tesla. Its stock has soared almost 1000% of its March value, and is now hovering at approximately $28 a share.

NIO and other Chinese manufacturers benefit from government subsidies, with pledges of financial support through 2022. These measures paired with a $1.4 billion government investment into charging infrastructure demonstrate a strong commitment. Some westerners remain skeptical of NIO’s successes and long-term value, citing concerns regarding Chinese transparency and the veracity of published figures.

Europe has seen considerable growth in the EV industry as well. Overall sales in 2019 increased by 44%, with double-digit percentage increases in the vast majority of European countries. Roughly half of the continent-wide market growth can be attributed to rising demand in Germany and the Netherlands, followed closely by France and Norway. As elsewhere, purchase subsidies and improving battery technology are heightening the appeal of EVs, but the introduction of a new EU emission standard – no more than 95g of carbon dioxide/km for passenger cars by 2021 – likely contributed to an additional rise in sales. As European cities emerge from lockdown, they will doubtless observe and account for behavioral changes resulting from months of confinement and disease-related anxiety.

In 2019, France set a carbon-neutral target year of 2050, with the UK following suit. Emmanuel Macron announced an $8.8 billion aid package for the country’s automobile industry in May, offering the most generous purchasing incentives of any country by providing buyers up to 12,000 euros ($13,150). With Tesla breaking ground on its Berlin gigafactory set to be complete by July 2021, it is clear that the European EV industry is on the rise.

BNEF predicts that by 2040 EV sales will rise to nearly 60% of the global auto market — compare that to 2010 when annual sales were close to zero. With consumer consciousness on the rise and market forces gaining momentum, EVs are quickly becoming the future of the automotive industry and investors’ darling in years to come.

With Assistance from Hayley Arlin