Posted on December 16, 2016 by Matt Pressman
This week, the Wall Street Journal (WSJ)* asked, "investors to get ready for the coming electric car revolution." In the past, WSJ has been reluctant to embrace electric vehicles. So what made them finally come around? Looks like Tesla Motors [NASDAQ: TSLA] is having an effect. "Precisely when electric cars leave their current luxury or green-tech niches and—after many false starts—enter the mainstream depends above all on relative cost. On that front, electric vehicles have momentum... [and] Silicon Valley disrupter Tesla has shown that there is consumer demand for well-designed electric cars."
Above: Tesla Model X (Instagram: wireduk)
Furthermore, an unmistakable catalyst appears to be lithium-ion batteries. It turns out that battery prices are falling fast. That means that change is coming. Looking back, "Battery-powered electric cars outsold gasoline ones at the dawn of the automotive age. In a decade or so they may well do so again. Investors need to watch out they don’t get caught on the wrong side of history... [and] the plummeting cost of batteries is key. The growth of mobile computing has driven massive investment in the area, improving the range of electric cars while reducing their cost. Mercedes-maker Daimler thinks the production cost of engine and battery technology might reach parity in 2025. But the tipping point for consumers, who also factor in subsidies and running costs, will be earlier."
Above: Electric vehicle battery costs are falling fast (Source: Wall Street Journal*)
Looking at global trends, it's likely that electric cars are due for takeoff: "Tightening environmental standards are making compliant internal combustion engines ever more expensive, particularly in Europe. Aggressive electric vehicle subsidies in China—the world’s largest car market by unit sales—have created built-in demand. Low gas prices—especially in the U.S.—are no longer electrification kryptonite... [and] the next few years will witness a flurry of launches to rival the [Chevy] Bolt and [Tesla] Model 3."
Above: Electric vehicle sales are accelerating (Source: Wall Street Journal*)
The industry stalwarts of Big Auto must adapt quickly. However: "Retaining relevance—and profits—in the electric era will be a challenge for traditional car makers. Accumulated expertise in engine technology has for decades protected stable market positions. Electric motors are simpler and cheaper to produce... [and] in time the companies that survive the rapids of industrial change could be seen—and valued—more like tech companies. The future of the car will be electric. The rewards for those who back the winners will be huge."
Above: Wall Street Journal is bullish on electric cars (Source: Wall Street Journal*)
Others on Wall Street are also forecasting an electric vehicle future ahead. If battery costs decline with Tesla calling for $100/kWh by 2020, Berenberg analyst Alexander Haissl notes, "We believe battery cost reductions will likely translate into lower purchase prices for EVs." This could mean an automotive paradigm shift. Looking at Tesla and the future of the electric car, Haissl concludes that vehicle electrification is: "The most significant change in automotive powertrain technology since the invention of the car, and potential obsolescence of [internal] combustion [engine] technology is likely... more severe than the industry expects."
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