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Charge of the electric car brigade will be costly for some
There is probably not much that most of the world’s richest men and biggest companies can agree on. Not climate change, or Brexit, or trade, and probably not even the impact of artificial intelligence or robotics on the 21st-century economy. But there is one thing that seems to unite the likes of Apple, the world’s biggest company; Sir James Dyson, with a net worth of more than $5bn (£3.8bn); Elon Musk, worth $20bn, and the world’s major venture capital funds. Electric cars are one of the greatest commercial opportunities of the next two decades.
Money is pouring into the emerging industry at an escalating rate. True, battery-powered vehicles are cleaner and getting cheaper, and the demand will be there. The trouble is, the market is set to become brutally crowded and the technology is changing rapidly. One or two companies will make a fortune. But a lot more will lose a ton of cash.
There is no question that Sir James is the UK’S smartest industrial entrepreneur. He turned the electrical appliance industry upside down. So when he plans to do the same to the car industry it is worth paying attention. This week it was announced he is pumping yet more money into his auto unit, with a planned test track in Wiltshire that will take his total investment up to £200m, with plans to have vehicles on sale by the start of the 2020s.
Sir James has never launched a dull product in his life, so he is certain to create something radical and different. It won’t be a Nissan Micra with a battery in the boot. Even so, by the time he gets to the market there is likely to be a lot of competition. In this country, Jaguar Land Rover is already planning a range of electric vehicles, and so are all the other major auto manufacturers, with an estimated $90bn in planned spending over the next few years to electrify existing vehicles. At the same time, a ton of venture capital money is pouring into the industry. An estimated $2bn has gone into electric vehicle start-ups in the first few months of this year, with companies such as Evelozcity raising around $1bn to break into the market, and plenty more with smaller amounts of seed money that can be scaled up very quickly.
That’s not all. Tesla has already carved out a powerful brand, and despite its production issues and the erratic behaviour of its founder Elon Musk, it is going to be hard to dislodge; the company is worth more than $50bn, which gives it plenty of firepower to meet any challenges that new players in the market might throw at it. China’s BYD is the largest manufacturer of electric vehicles in the world and plans to expand abroad – Warren Buffett is already a major shareholder. Meanwhile, the tech giants are hovering ominously in the background. Apple has talked about a move into cars for a couple of years with a mix of electric and driverless technology (and there has been speculation it might buy Tesla, which would be a formidable combination). With a cash-pile of close on $300bn it can throw almost unlimited amounts money at the industry, as well deploying one of the world’s most powerful brands. And, of course, if Apple does get into the industry it probably won’t be long before Amazon and Google follow it, and they will have billions to throw at it as well. Very quickly, this market will be more crowded than the M25 on a bank holiday weekend.
Of course, there is potentially a huge market for electric cars, with some estimates of the likely sales put above $200bn annually by the start of the 2020s. They are largely pollution free and as battery costs fall they should be cheaper to run as well. Within a couple of decades, they could have completely replaced the fossil fuel variety.
Even so, anyone getting into the market faces three huge challenges. First, the scale of investment needed is huge. A billion or two doesn’t get you very far in the auto industry. There are factories to build, and dealer networks to supply. It consumes cash on an epic scale. Next, there are already lots and lots of companies piling into the space. Finally, the industry is being disrupted from several different directions at the same time. Electricity is replacing petrol at the same time as driverless cars are being developed and ridesharing apps led by Uber are turning it from an ownership to a subscription industry. It is completely chaotic. How all that will eventually shakedown is anyone’s guess.
In truth, the existing auto industry is massive, but returns on capital are often miserable. It is impossible to believe there will ever be space for all the companies trying to get into the business. Sure, an electric auto industry is going to emerge by 2030, and it will generate formidable quantities of money. A new Henry Ford, Gottlieb Daimler or Soichiro Honda may well emerge as the industry develops. But getting there is going to be a bloodbath – and a lot of reputations and billions in investment will be trashed in the process.
‘Within a couple of decades, electric cars could completely replace the fossil fuel variety’