The electric vehicle (EV) market is no longer a niche market. Let me reiterate. The EV market is no longer a niche market. What was once a side gig and nod to the green movement is fast-becoming a revolution and double-digit growth opportunity for investors.

To help put this opportunity into perspective let’s look at some numbers. The EV industry has been growing at a double-digit CAGR for the last several years. It is expected to grow at a high double-digit CAGR for the next two decades, at least, and eventually dominated what is now a $3 trillion dollar industry.

IHS forecast a 52% compound annual growth rate for the 2021-2025 period with much of that growth on the front end. The forecast for 2021 is calling for a 70% increase in EV sales that will be underpinned by growth in all three major markets; the U.S., China, and Europe. By 2025, the total sales will top 12.5 million and account for 10% of the addressable car market. Beyond that, the average annual growth will continue to slow until EV takes over the bulk of new vehicle sales.

In that time, the net of EV sales is going to grow from an estimated $90 billion in 2020 to over $15 trillion by 2050. That’s a lot of growth and investors who get in now will be able to cash.

The EV Industry Is Supported By Regulations

Regulations are supporting the EV industry worldwide and should continue to do so for the foreseeable future. Although the quantity and scope of subsidies have shrunk from their peaks in the earlier portion of the century they are still attractive enough to spur both consumers and manufacturers into action.

The new infrastructure bill has put a massive emphasis on EV and renewable energies in general. In the U.S., the newly inaugurated Biden administration is expected to unveil a swath of regulation and legislation intended to support the industry and that has the entire market moving higher. Emerging markets especially China are heavily investing into EV as well and are starting to pump out brands that can compete with the US. Among the many plans put forth is a switch to 100% electric within the federal fleet along with subsidies and tax credits for buyers.

China has also extended its policy of dual subsidies in 2020, one for the maker and one for the buyer, for another three years at least. This move is in support of China’s push to electrification and its leadership status in the global EV market. China’s EV market is expected to be 14.6% of the country’s total auto market by 2025 and that estimate could be too low. Sales of domestic EVs in China have begun to surge due to ramping production among the leading manufacturers, some of which are posting triple-digit YOY increases.

In Europe, the story is even rosier in terms of regulations. The EU has some of the strictest regulations of CO2 emissions which by themselves are driving demand for EVs. The EU enacted new regulations in 2019 that sparked a boom in the first half of the year despite the COVID-19 pandemic. The latest estimates have EV market share in the EU in the 8% to 9% range versus the 3% global average and that figure will grow over the coming year. Some regions within the union have already reached a 10% EV market share in the second half of the year after buyer incentives kicked in.

Sizing Up The Competition In The EV Industry

As it stands Tesla is by far the most prolific of all the EV manufacturers but the competition is heating up. In terms of its annual sales, Tesla (NASDAQ: TSLA) is still just a drop in the bucket compared to GM’s (NYSE: GM) total sales but GM is lagging when it comes to EV. GM, the number two producer in the U.S., only commands about 12% of the market compared to Tesla’s 53% but plans to spend up to $27 billion to correct that. Part of the plan is to have a full line of EV vehicles by 2025 making it the most serious of the big automakers and that is saying something. All of the major manufacturers are planning or in-progress of expanding their EV lineups right now. We will also see how Nio performs in EU markets and if it can compete with Tesla, Toyota & others.

Aside from the major OEM manufacturers, the EV market is filled with start-ups and early-phase production companies. Some are producing revenue while others are not so beware of what you buy. There are also many verticals in EVs, for example some are just working on battery components, others on software and some are working on car manufacturing.

The growth into EV are varied for the big automakers but can be separated into three categories; internal investment in electrification, investment in third party technology, or acquisition of third-party technology. In the end, all the big manufacturers are going to employ a combination of the three which is why a diversified approach to EV investing is such a good idea.

Today’s fractured EV market is moving higher in a rising-tide-lifts-all-ships scenario but not all will be winners. EVs are the future, there is no doubt about that. The question is, will there be multiple winners in a highly completive and capital intense industry? The smaller start-ups that prove their utility will either make their deals for expansion and growth or get scooped up by their larger counterparts. If they don’t, they’ll fall by the wayside while the big players’ success is all but assured.  Either way, investors will come out ahead but which EV manufacturer will ultimately come out on top? The most likely scenario has the major automakers plus Tesla maintaining their dominance but who really knows?


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