UBS analysts: automakers’ cautious, compliance-based EV strategies will fail

A recent report from a group of analysts at the Swiss investment bank UBS contains two interesting insights about the current state of the EV market. The first has to do with automakers’ battery development efforts.

Above: UBS (Flickr: Martin Abegglen)

Comparing the batteries used in different EV models may sound like a task for electrical engineers, or chemists. Nowadays, however, stock analysts are finding that they need to learn the basics of anodes, cathodes, electrolytes and separators. The reason comes down to a simple equation: batteries are the main cost component of tomorrow’s automobiles, so the relative competitive positions of the world’s automakers will increasingly depend on their battery costs.

As Business Insider reports, the UBS analysts compared battery cells from several global automakers, including Tesla, GM, VW, Toyota and BMW. The results were no surprise—as earlier teardowns and comparisons by scientists and battery experts have found, Tesla’s technology is superior according to most of the relevant criteria.

There’s a catch, however: to achieve the volume it needs, Tesla is increasingly relying on suppliers such as CATL, LG Chem and Panasonic, and these same companies also supply cells to the other automakers. “While Tesla continues to lead with the best overall powertrain technology,” the analysts wrote, “the cost lead in battery cells is minor by now and will depend on its new proprietary cell design in the future.”

Tesla’s new 4680 cells feature a number of major improvements—they pack more power and more energy, are cheaper to produce, and require no controversial cobalt. Tesla plans to produce the 4680s in-house, but recently revealed that its partner Panasonic will also be producing the new cells.

Of course, none of this means that other automakers are going to gain access to Tesla’s proprietary battery tech—the California carmaker guards its crown jewels just as zealously as any tech firm does, headline-grabbing maneuvers such as “all our patents are belong to you” notwithstanding. But there’s no question that other EV-makers are pursuing next-gen battery tech—Toyota and VW-backed QuantumScape are both working on solid-state cells, to give two examples.

There’s another, even more eye-opening finding in the UBS report: the strategy that most legacy automakers are following, which consists of cautiously rolling out enough EVs to comply with local regulations, while continuing to push high-margin gas-guzzlers, is bound to fail.

Thanks to declining battery costs, EVs will be cheaper than ICE vehicles within the next few years, right around the time that several nations will need to begin preparing for upcoming bans on fossil vehicles. Automakers that don’t have competitive EVs ready to sell, or that haven’t secured sufficient supplies of battery cells, are going to be [insert your favorite colorful metaphor here: up the creek; standing with finger in corporate ear; deeply embedded in some unpleasant substance; etc].

As the UBS analysts see it, the only way for the legacy automakers to catch up will be to commit fully to electrification, and the only company that’s doing anything like this is Volkswagen.

“A steep cost reduction curve in combination with an ever-improving regulatory environment in favor of EVs makes it a necessity for auto companies to pursue an ‘all-in’ EV strategy, meaning that purely CO₂-compliance strategies are likely to fail,” the analysts wrote. “Tesla will likely remain the cost and technology benchmark for several more years, and Volkswagen is the fastest follower on a global scale. Its €33 billion [in] committed EV investments over a 5-year period are still unmatched.”

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Written by: Charles Morris