The Future Of The EV Market

As I aforementioned in my previous article, this has been the year of the EV (Electric Vehicle), the SPAC (Special Purpose Acquisition Company), and a combination of the two. With a multitude of companies entering the EV market and attempting to snare some market share, the market is becoming overcrowded. Strong competition will be inevitable in an emerging growth market like EV, but some issues arise. To start, the entire market is in a euphoric state. EVs have become the hottest tech trend in recent years, people love them. With companies emerging out of China and the U.S. in seemingly uncontrollable numbers we run into some problems. Globally, we have about 60 dominant automakers which are owned by a group of some 14 parent corporations. For comparison, we now have upwards of 40 companies currently in production of EV’s(1), under 10 of those are companies that identify under the 60 dominant. I believe only a handful will prevail, which is why I will reiterate that this market is currently overcrowded. An automotive oligopoly is not sustainable, and a correction is coming. How many other well-established companies can transition into the EV market as it continues to gain traction? A newly incepted EV company may look enticing as you marvel over concept photos of its stylish fully electric pickup on Twitter. But how long before that truck goes into production? What start-up problems will the company have? A 2019 study showed that the “failure rate of startups was around 90%”(2). The timeline for these EVs to achieve full production capabilities is often unknown. A well-established company like Mercedes-Benz has the resources, technology, and infrastructure to compose an EV fleet in record time (they are most likely amidst the process as you read this). If the top 50 well-known car brands can roll out an EV fleet over the next 1-2 years the consumer will most likely choose them over a newly minted Chinese company whose stock is exploding on Robinhood. On top of that, the demographic advocating so strongly for EV is either still in school or not making enough money yet to be financially independent, let alone buy/own a car. Stay away from risky EV stocks in the long term, chances they offer a positive return are low. In the short term, ride the wave, there is plenty of money to be made day-trading these EVs/SPACs. The Biden Administration’s sustainability outlook would boost the already booming EV market, but stay cautious. Buying established auto may be the right longevity call, but which one depends on who moves the swiftest. The hype surrounding new EV companies is not sustainable, and I think investors will be very disappointed to see the already established automotive conglomerates make a quick shift in the business plan towards EV, eliminating many hopeful startups. General Motors (NYSE: GM) and Toyota (NYSE: TM) will do what’s necessary to maintain overall auto market share and if that means a full scaleback of their fossil fleet to make room for EV, they will. While I wish EV companies the best, I think a majority will benefit more from being bought out by a GM than stepping into the ring with Toyota. The future is going to hold many exciting new changes to the traditional way of life as we know it, but stay cautious and think critically about the economics before diving headfirst off the EV cliff.

At the time of writing/publication I, Robert McCulloch, do not own any security mentioned in this article.

1. Wynand, Goosen. “GLOBAL EV SALES.” WattEV2Buy, 2020, wattev2buy.com/global-ev-sales/.

2. Bryant, Sean. “How Many Startups Fail and Why?” Investopedia, Investopedia, 9 Nov. 2020, www.investopedia.com/articles/personal-finance/040915/how-many-startups-fail-and-why.asp