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  • Mar 18
  • Vinit

Companies like Tesla and NIO are sky rocketing (not to mention SpaceX). Investors have shown a strong enthusiasm for electrification, which has led to rising valuations of such companies. By the end of August 2020, the aggregate value of publicly traded pureplay electric car companies reached $492.3 billion, which is almost on par with the entire $589.0 billion traditional auto industry despite making up only a small fraction of new vehicle sales. Following the footsteps of Tesla and NIO, other traditional car manufacturers such as BMW, Mercedes, and Audi have too joined the race. In fact, startups such as Fisker Inc, Karma Automotive, Lordstown Motors, and Nikola Motors have announced plans to debut on public markets, many through special purpose acquisition company deals.

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According to Pitchbook, there are three factors driving the demand for electric vehicles:

  1. 1. Technological improvements
  2. 2. Favorable regulatory tailwinds
  3. 3. Greater investments

Today, electric cars have better design, durability, and safety than gas-based vehicles. With more investments in this space, electric cars are set to become cheaper and more affordable as well.

Government initiatives will play a key role in fostering demand for electric vehicles. As the world recovers from the COVID-19 pandemic, people continue avoiding public transit such as trains and buses to commute to and from work. Moreover, rising congestion in cities have prompted efforts to reduce emissions as some countries take decisive actions to encourage electric vehicle adoption. For example, UK, Germany, and France have announced plans to ramp up subsidies for electric vehicles. On the other side of the planet, China’s Ministry of Industry and Information Technology has set a target for electric vehicle sales to represent 25% of new vehicle sales by 2025, up from approximately 5% in 2020. Additionally, China has extended subsidies for electric vehicles until 2022 and created exemptions from purchase taxes.

In terms of battery technology, automotive manufacturers have taken steps to improve durability and safety at high temperatures. The battery determines the important specifications, including acceleration and weight. It also accumulates for the highest cost of the car and ultimately determines the affordability of the vehicle. According to Pitchbook, automakers that establish strong partnerships with battery suppliers and vertically integrate battery production are better positioned to reduce costs. For example, Tesla has successfully vertically integrated its supply chain by creating a symbiotic relationship with Panasonic, which operates lines in Tesla facilities. As a result, Tesla has simultaneously cut battery costs, improving affordability of its electric vehicles, while also increasing its profits.

Overall, the EV space looks exciting, and its growth remains strong despite nation-wide lockdowns and restrictions. What will be interesting to see is that how quickly the technology spreads to developing countries such as India, Brazil, and Mexico where there is insufficient power infrastructure to support enough energy demand.



Bibliography


Pitchbook. “Electric Vehicles Poised to Reshape Auto Industry Q3 2020,” n.d.

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