It’s rare to see photographs in investment reports, but two photos told the whole story. The first: “5th Avenue, Easter 1900,” and the same in 1913. If you scrutinize the first one carefully you can see one automobile amongst the horse drawn carriages, in the second you struggle to find a horse amongst the cars. Sometimes human change can be very dramatic. Especially in wars….and pandemics.
The investment report was a seminal work by Adam Jones of Morgan Stanley which dared to predict that one day Tesla would become one of America’s four largest car companies. That was ten years ago and at that point Tesla was bravely priced at $23.71 – it recently peaked at $880. Now, Tesla is not just the largest car company in the world by market capitalization – ten times larger than General Motors – but its value is equal to the other ten largest companies put together. That is allocation of capital funding innovation at its best.
Whether Tesla is still a “buy” is of course a very different question. It is noteworthy that in the latest Schmidt European report Tesla’s sales actually shrank by 10.7% in 2020, taking its market share down a full 16 percentage points to 13.4%. But this report certainly shows just how quickly things are changing. EV and hybrid sales are now 12.4% of new car sales in Europe, and 300,000 of the 730,000 electric vehicles sold in 2020, were in the last quarter alone, indicating an accelerating trend. Globally EV sales rose 43% in 2020.
Informed observers are starting to ask “when will there be a tipping point in mass adoption?” It appears there will in fact be two crucial inflection points. The first one when EV’s are cheaper than petrol cars thanks to Government action (subsidies/taxation). This has already happened in Norway, and EVs are now the majority (54%) of new sales. Ten years ago they were 1%. Interestingly, several other countries in Europe are also getting close, notably the Netherlands, and the UK (which recently announced a ban on new petrol vehicles by 2030).
The second tipping point comes when an electric vehicle is cheaper than a petrol one without Government intervention. This second tipping point is crucial and “operates at a larger scale than the first, in all three of the dimensions of space (geographical area), time (degree of permanence) and system boundary (qualitatively defined).”
This revolution will happen when manufacturing costs fall; and they are getting there quickly. The price of lithium-ion batteries is key, and in the last decade this has fallen by an impressive 90%. McKinsey recently predicted that “electric vehicles are likely to become the most economic choice in the next five years in many parts of the world.”
It goes beyond price. Drivers increasingly prefer electric cars because they are quieter and faster, perhaps even that they fight climate change. A recent survey by Zap map found 91% of car owners said they would never go back to petrol.
Corporates can see all this happening and are moving fast. All car manufacturers, not just the EV specialists like Tesla or Nio, are scrambling to change. Volkswagen is planning some 300 different electric/hybrid models by 2030, and General Motors is investing $27 billion by 2025. The top selling European EV manufacturer in the Schmidt report is now Volkswagen, with their e-Tron vehicle overtaking Tesla’s Model 3.
And it’s not just motor manufacturers, but anyone involved in transportation. Uber and Lyft have both targeted 100% electric fleets by 2030. Amazon, UPS and FedEx have announced large fleet electrifications. Rivian Automotive, backed by Amazon, is planning a massive new factory, and has plans to go public in September in an IPO touted at $50 billion. Even the petrol companies themselves are getting in on the act. Shell recently purchased EV charging firm Ubitricity and is planning to take its 60,000 EV charging points up to 500,000 by 2025.
Companies are insuring that the EV revolution happens. Which is lucky, because politicians are falling short. There wasn’t Federal legislation against horses in 1900, nor did they increase the tax on oats, but things will certainly happen quicker if Governments can help with that first tipping point.
A few have been brave enough to follow Norway’s lead: Germany doubled EV incentives last summer, France has a subsidy now on second-hand purchases. Government procurement is also moving in the right direction (President Biden recently announced the electrification of the Federal fleet), and legislated bans on electric vehicles are coming closer. These are important moves. When the UK announced their intended ban, Autotrader, the car sales website, saw a doubling in EV vehicle searches overnight.
But the sums of public money being spent on EVs are still pitifully small compared to the vast corporate billions being deployed. Even Germany’s move only costs €2.2 billion and the UK’s much-hyped charging points “electric vehicle revolution” costs a mere £20 million. Why?
I fear there is a failure to adjust thinking. There is still a marked distaste for cars, and an obsession with pushing the alternatives, which has failed to adjust for technological change, and for the implications of the pandemic.
Take Osborne and Holland’s article “Electric cars are great, even better no cars.” This repeats pre-Pandemic logic about redesigning whole communities, reducing car dependency and investing heavily in public transport. They demand policies that “could be implemented without having to rely on the whims of the American car buyer.” The authors obviously haven’t looked at the 5th Avenue photographs.
This orthodoxy leads to a continuing massive deployment of public funds to public transport (compare the UK’s £88 billion on HS2 to that tiny £20 million on EV charging), just when everything has changed. Take-up is down 70% in most countries for understandable health concerns which are justified by scientific opinion. Analysing Wuhan, Professor Zhao et al found a “strong and significant association between travel by train and … cases.” Quian et al’s paper found that public transport was second only to household transmission as a key spreader, responsible for some 34% of infections.
If we have to learn to live with Covid, as we are increasingly told, these concerns will always be relevant. Maybe packed commuter trains and buses have gone forever? This has big implications for the economics of public transport systems, and comparisons of cost per mile.
Other key behavioural changes could also be permanent. Spotify’s recently announced “work from anywhere” policy captures the new, remote-working, zooming, zeitgeist. Commuting – indeed, travel – has changed forever. Transport expert Christian Wolmar predicts 2019 will be “the peak for a couple of decades.”
Can we think out of the box? Politicians’ adherence to orthodoxy is making them prone to sloppy planning. In a recent withering judgement against London’s ‘Streetspace’ initiative, the judge criticised “perfunctory or non-existent” analysis that she said “read as if its purpose was to justify the decision already taken.” Blinkered thinking ignored the severe consequences for passengers who cannot walk, cycle or use public transport and that the “needs of people with protected characteristics, including the elderly and disabled” were simply “not considered.” I would add “nor were EVs.”
Politicians really need to look at those photographs.
Christopher Walker is a writer on business and politics. He sat for several years on the asset allocation committee of a major asset manager.