Investment Opportunities in Electric Vehicles

Investment Opportunities in Electric Vehicles

We have a positive outlook for the global electric vehicles industry. Sales of electric vehicles doubled in 2021 to 6.6 million vehicles, and we expect sales of 9 million to 10 million units in 2022. It’s important to note that ten years ago, roughly 160,000 electric vehicles were sold in all of 2012. In 2021 there were 160,000 EV units sold every week.

Roughly 10% of global car sales are electric, and we expect a compound annual growth rate of 30% to 40% over the next five years. However, we acknowledge the risks for investors in the space and we think that charging infrastructure and batteries are the best risk-adjusted ways to invest in electric vehicles.

Strong Fundamentals for Electric Vehicles

Demand for electric vehicles has been driven by regulatory policies around greenhouse gas emissions. Total government incentives for EVs doubled in 2021 to roughly $30 billion. Further, many countries have pledged to phase out combustion engine vehicles entirely over the coming decades.

Many of the legacy automakers are migrating to electric models, and the surging gas prices are helping to drive more customer adoption. For example, BMW aims for half of its models to be fully electric by 2030, while Volvo is targeting being a fully-electric car company over the same period.

Global Demand Remains Strong with Opportunities in Emerging Markets

China is driving demand for electric vehicles and its manufacturing costs are much closer to traditional gasoline cars than in other markets like Europe and the United States. To put China’s demand in perspective, its 3.3 million EVs sold in 2021 was more than the entire world’s EV sales in 2020.

Robust growth in Europe is also driving demand for electric vehicles and the components needed in the manufacturing process. Europe’s EV sales grew roughly 60% in 2021 reaching 2.2 million units. Europe has the highest EV penetration when compared to other regions.

We expect global EV sales to grow at 30% to 40% annually over the next five years. We also expect India to become a major contributor to EV demand, and we expect the country's EV sales to double in 2022. In addition to traditional EVs, we expect electric motorbikes and three-wheelers to have strong demand in markets like India, Vietnam, and Africa.

The Demand for Batteries Presents Opportunities for Investors

We think that charging infrastructure and EV batteries present the best opportunities for investors. We are skeptical of the legacy automakers because of the risks surrounding the potentially stranded assets of the legacy models.

We have also seen several of the EV startups like Nikola and Lordstown Motors turn out to be frauds, handing severe losses to investors. Rivian, which had Amazon and Ford as backers, is below its IPO price because of stiff competition and Amazon's recent partnership with a competitor.

Lithium-ion battery pack prices were more than $1,200 per kilowatt-hour in 2010 and have fallen 89% in real terms to $132/kWh in 2021. This is positive for the EV industry which relies on lithium-ion battery technology. We expect prices to continue to fall over the next two to three years to between $107/kWh to $112/Kwh. However, we acknowledge the impact of rising commodity prices for key materials such as electrolytes, which could support higher battery prices over the next 12 to 18 months. 

The Battery Index has outperformed electric vehicles, showing the tight supply and robust demand for battery materials. Companies like BYD, LG Energy Solution, and Contemporary Amperex Technology are leaders in the battery industry. Countries around the world are also scrambling to secure or nationalize lithium supplies.

Charging Infrastructure Presents Opportunities for Investors

We think that the growth rates in EV infrastructure, versus what is needed to support EV sales growth, provides a secular tailwind for investors in EV charging. For example, we have seen growth rates of 50% or more for EV sales, while the CAGR for charging infrastructure has grown by less than 20% over the same timeframe.

In 2021, sales of EVs more than doubled to bring the total fleet to roughly 16 million, up 200% over the last three years. However, the number of publicly available charging points stood at only 1.8 million (and less than half are high speed chargers). We acknowledge that most charging will be done at the home or office, but we believe that having widespread infrastructure available will be necessary to support the EV adoption we are forecasting.

Our Outlook is Positive

We expect the strong fundamentals to continue in EV charging and battery technologies supported by government incentives, high gas prices, and investors' growing focus on sustainability.

Investors can select to diversify across publicly-traded battery companies like BYD, or invest in cleantech managers that are providing capital at various stages to private companies along the EV value chain. Contact us to learn more about investing in clean technologies.