Electric car revolution
The fossil fuel auto industry like any other commodity that is too old, uncreative, cause pollution and damage the environment is coming to an end. Well, it has truly become commoditized, i.e. it can only survive on supply and demand. Over the past decades, clean and environmentally cheap energy killed the coal industry. In recent years, the smart phone finished off the old and boring mobile phone and now is also killing the cameras industry.
At present, we are witnessing a new revolution in the auto industry. The emergence of the smart electric car. The high-tech smart electric cars will outsell fossil-fuel powered vehicles within two decades as the cost and the price of battery plunge, turning the global auto industry upside down and signaling economic turmoil for the traditional car producers, its supply chain and possibly oil-exporting countries.
The latest and most reliable forecast says adoption of emission-free vehicles will happen more quickly than previously estimated because the cost of building electric cars is falling so fast. This dramatic shift will see cars with an electric plug account for a third of the global auto fleet by 2040. This translate to over 58 percent of all the cars on the planet. Also it will displace about 13 million barrels a day of oil production.
This is just pure economics. As the prices of Lithium-ion battery prices are going to come down sooner and faster, the cost of producing efficient electric cars will come down too and demand picks up accordingly. There has been a surge of investment in lithium-ion batteries, higher manufacturing capacity at companies including Tesla Inc. and Nissan Motor Co., as well as emerging consumer demand from China to Europe supports the expectations and forecast that by 2025 electric cars will be as cheap as gasoline vehicles, pushing the global fleet to 530 million vehicles by 2040, this is equivalent to around 58 percent of the cars in the world. There’s around 90 gigawatt hours of Electric Vehicles lithium-ion battery manufacturing capacity online now, and this is set to rise to 270 gigawatt hours by 2021. Charging infrastructure will continue to be an issue with bottlenecks capping growth in key Chinese, US and Europe.
One of the reasons why there has been a sudden surge in the production and demand for electric cars is the steep fall in the cost of the Lithiumion cell. The cost has fallen by 70 percent since the peak in 2010. Severe competition and innovation by battery manufacturers will accelerate and lead to further steep declines in average prices over the next two decades. There is a clear element of competitive dynamics that will ultimately will lead to oversupply in the lithium ion battery market that will drag down prices.
There will be winners and losers once the global transformation toward electric vehicles gets into full swing. It will lead to a real and fundamental shake up in the auto industry. Most car parts manufacturers such as traditional batteries, spark plugs, gears, fuel injection, tires manufacturers and oil majors will face upheaval. While traditional car suppliers may be hurt by the growth in the electric car industry, some industrial commodity producers such as Graphite, Nickel, Aluminum, Cobalt, Manganese and obviously Lithium will be great winners.
It will be the world’s biggest economies, USA, Europe and China that will drive the demand for the electric car in the next decades. Companies and governments which have already been the most advanced in providing subsidies and installing charging points, will reap the benefits sooner than other economies.
Electric cars are basically much cheaper than gas or oil fueled cars because they’re simple, lighter and servicing them are much easier, quicker and cheaper. The future electric car may not look much different from the existing traditional cars but the new materials and the high technology that goes into them are completely new and different. These new components will simply revolutionize the market for metals and technology used in the industry, opening a new field for commodities and high technology suppliers and investors. This could be an inflection point for demand that could make great fortune for suppliers and investors. Just imagine that you had invested in General Motors and Ford about hundred years ago.
The number of electric and hybrid vehicles on the road worldwide surpassed 1.3 million last year per the International Energy Agency. This number compares with 14,000 back in 2010 and 4m cars by 2019. It is quite clear that the demand for electric car is growing exponentially.
For investors to make the most out of this extreme and promising growth, they first need to identify what sits below the bonnet of the electric car. The most obvious one is the Lithium battery. Lithium being a natural commodity will ultimately become commoditized and over time its price will continue to fall in line with supply increase. The electric car is all about technology. It filled with high tech soft wares, from Censors, GPS’s, Connectives, Antennas and High-Tech Chips. High technology companies that supplies these components are mostly based in Europe, US and Japan. Some of them are listed and others are privately owned. It is a fragmented industry and most likely there will be a future consolidation in the industry.
It is a hard and complicated task for investors but the starting point is that, investors in the electric industry should study the industry very carefully, understand the future electric car fully, find out what is the electric car about, how it works, what is under the bonnet and then identify those companies that are geared up to supply the electric car manufacturers. It is a hard task ahead but it worth it in the long run.