Investment Thesis - Electric Vehicles (EVs)

Electric vehicles, or EVs for short, have been gaining a lot of attention over the past few years. Companies like Tesla are striving to prove that EVs can be fast, secure, and increasingly affordable modes of transportation. People are also beginning to notice that electric vehicles tend to require less maintenance than typical gasoline-powered cars or trucks.

Moreover, some analysts argue that the economics of battery technology are superior to those of the internal combustion engine and that there is bound to be considerable cost reduction over time. Research by Ark Invest suggests that due to declining costs and increased adoption, electric vehicle sales could increase more than 30-fold to 17 million units, or 20% of total auto sales globally by 2022.

2022: An Inflection Point

Ark Invest estimates that by 2022 demand for electric vehicles will begin to outpace that for gasoline powered cars:

“As the cost of lithium-ion cells falls faster than most analysts have anticipated and the cost to manufacture traditional Internal Combustion Engine (ICE) powertrains increases, ARK Invest’s analysis suggests that 200-mile range EVs will be cheaper to the consumer than the majority of ICE vehicles within five to seven years”.

Ark Invest also goes on to explain why the 200-mile mark is so relevant and why 200-mile EVs are the focus of major auto manufacturers:

“Major auto manufacturers have focused their research and development efforts on a 200-mile range EV for a reason. Roughly 60% of the U.S. population does not travel long distances in an average year. Among those consumers who do, more than half travel fewer than 200 miles per trip. Meanwhile, among those commuting with a personally owned vehicle (POV), 99.5% travel fewer than 99 miles one-way. Consequently, a 200-mile range EV could accommodate roughly 80% of the U.S. population’s travel needs and prove sufficient for nearly every commuter with a POV”.

Lithium Supply

As adoption of electric vehicles takes off and production costs decline, one concern is that lithium supply won’t manage to keep up with the demand for lithium-based batteries. However, as a lithium “gold rush”  takes place, mining companies should invest more resources into extracting and discovering more of it.

Given the exponential ramp in demand for EVs that Ark is anticipating, lithium prices should continue to rise to the marginal cost of extracting it, giving mining companies with access to large reserves an opportunity to benefit disproportionately. A recent deal between Tesla and Piedmont Lithium suggests maybe they are right. 

Trends Vary by Region

As pointed out by McKinsey, key EV markets suggest shifting regional dynamics, with China and the United States losing ground to Europe, while many other regions still lag far behind. 

In fact nine out of the top ten markets for EV penetration were European.