The road to electrification – who could win the race?

Nickel, a major component in long-range electric engines, recently reached its highest price in ten years. This comes as no surprise though. Arguably the biggest transformation to the travel industry since we ditched the horse and cart, the electric vehicle (EV) revolution is well and truly upon us.

Last year, more EVs were registered than the five previous years combined. In the UK, the government’s set a deadline of 2030, specifically banning the sale of new petrol or diesel cars. While some traditional car makers might have been slow off the mark to design and produce EV cars, they no longer have the luxury of choice.

Here we’ll take a look at how the EV industry is shaping up, and what the major players are doing to try and capture the ever-increasing demand.

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Technoking

Perhaps the first name many of us think of when EVs spring to mind is Tesla. Elon Musk, founder, CEO and ‘Technoking of Tesla’ as he officially named himself, is the wealthiest man on the planet and Tesla’s by far the most valuable car company in the world.

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Self-driving cars and talk of robot taxis might make headlines, but it’s the production and sales volumes of core vehicles that need to keep growing. To its credit, the group's been making progress, delivering just north of 930,000 cars last year. Five years ago, that number was just above 100,000.

But increasing production capacity takes time, and a lot of money. Two new factories in Texas and Berlin are expected to help deliver the targeted growth of 50% per year on a multi-year horizon. Various headwinds, like labour shortages and disruption at ports have kept existing factories from reaching full capacity. This is likely to carry on in the coming year, so new facilities can't come soon enough.

The cost of ramping up production is huge and caused operating costs to shoot up 50% last year. That’s ok if sales follow suit. As production at sites increases, the group benefits from lower per-unit cost, which feeds into higher margins and profits.

For Tesla, one of the biggest challenges is keeping investors happy. Such a huge valuation comes with some pretty high expectations for growth. The group currently trades on a price to earnings ratio of 82.3, that means only exceptional growth will do and there are no guarantees.

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The old school

Tesla might be a household name, but it’s relatively new to the block when compared to traditional automakers. Long histories of creating internal combustion engines mean these companies have had to adapt to the new electric world.

Take Volkswagen (VW) as an example. Last year the group delivered 452,900 fully electric vehicles, close to double 2020 levels and representing 5.1% of total deliveries. The group’s ‘NEW AUTO’ strategy is its attempt to shift focus from traditional vehicles to EVs, software and autonomous driving. The strategy aims to double its EV car sales every second year, with volumes equalling half of all car sales by 2030.

There’s a long way to go and that won’t come cheap. €52bn has been earmarked to drive the transformation over the next four years – a big chunk of total planned capital expenditure. And VW aren’t the only ones opening the chequebook.

Ford are planning to spend in the region of $30m through to 2025 to electrify their vehicles. The Mach-E, which launched last year, was the group’s first attempt at an EV following the appointment of Jim Farley as CEO in 2020 – and it's proven pretty popular. 27,140 Mach-Es have been sold to date, topped in its US sector only by Tesla’s model Y. The next step is to launch an electric version of the extremely popular F-150 pickup truck and Ford Transit Van.

The challenge ahead for Ford is one of scale, with EV sales only making up 7% of total sales in December, production needs to ramp up. To that end, Ford formed a joint venture with SK innovation to manufacture battery cells in the US, a major milestone that will help scale production of the electric F-150 pickup.

General Motors, owner of brands like Chevrolet and Cadillac, is another automaker joining the revolution with $35bn pledged over the next three years. That’ll fund everything EV related from battery manufacturing and EV focused production plants, all the way to end-user infrastructure like fast charging stations. GM’s strategy is an all-encompassing one, with the aim to monetarise every aspect of the EV lifestyle.

The group’s aiming to have 30 different EV vehicles on offer by 2025, selling around 1m EVs a year across North America and China. But there’s a lot to do in a short space of time, with Chevrolet selling less than 25,000 EVs last year, ranking behind both Tesla and Ford.

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Who could win the race?

In all likelihood, there’s enough pie to go around. Some industry executives predict that close to half of all new car sales will be electric by 2030, that’s a lot of pie. But that’s not to say the road over the next decade will be an easy one. As we’ve seen, creating an EV empire takes a huge amount of capital and it’s an evolving landscape.

Semiconductor shortages have impacted supply chains in the entire industry and inflation could weaken demand for new cars. But, at the end of the day, this is a shift in transportation like we’ve not seen for a long time – and for automakers it’s a case of get on board or be left behind.

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