Electric vehicles aren’t just popular with environmentalists – they’ve become sharemarket darlings too. So what are the market forces driving the electric vehicle revolution, and what does it mean for consumers, investors and the planet?

7 January 2021 was a red-letter day on global financial markets, when Elon Musk passed Jeff Bezos to become the world’s richest person.1 The next day, Tesla’s market capitalisation surged even higher to over US$800 billion – more than most of the world’s biggest carmakers combined.2 It was an extraordinary achievement for the man at the forefront of the global electric vehicle revolution.

Yet while Tesla is an electric vehicle (EV) pioneer, it isn’t alone. Industry giants like Ford and General Motors are rapidly catching up, with a succession of new models set to be released over the next few years.

General Motors has pledged to produce 30 new global EVs by 2025, and to stop making petrol-powered passenger cars, vans and SUVs entirely 10 years later.3 Ford has promised to make electric vehicles affordable to the masses, with a range of cars, vans and pick-up trucks slated to cost between $28,000 and $100,000.4

As the number of EVs on the road reaches critical mass, and more governments and business invest in recharging infrastructure, the EV revolution is only set to accelerate.

Businesses, consumers and governments get on board

Lying behind this rapid change in direction is a surge in sales, as consumers jump on the electric bandwagon. In 2019, 2.1 million EVs were purchased globally – up two thirds from 2 years earlier.5 EV sales jumped 80% in the US in 2018 – one of the world’s strongest markets, alongside China and Europe. While COVID-19 has impacted more recent growth, EVs have become increasingly attractive thanks to improved batteries and greater availability of charging infrastructure. Bloomberg New Energy Finance predicts that by 2040, EV sales will make up nearly 60% of the global automotive market.5

Helping to fuel this growing popularity are new government regulations and subsidies as they seek to reduce carbon emissions. Recent developments include the introduction of new EU emission standards, US President Joe Biden’s pledge to switch the American government vehicle fleet to EVs, and several countries announcing plans to phase out the sale of new petrol and diesel cars within the next 10 to 20 years, including the UK, France, Norway and the Netherlands.

With consumers and governments driving demand, businesses are investing rapidly – including energy companies looking to pivot into new technologies. Bloomberg New Energy Finance projects that 12 million public EV charging points will be needed globally by 2040, up from fewer than one million today, requiring an overall investment of about $111 billion.6 That has seen companies like Shell and BP buy stakes in charging networks, as they seek to diversify from oil.

The appeal for consumers

So why are EV sales surging around the world? One of the biggest drawcards is cost. While still relatively expensive to buy, EVs are cheaper to ‘fuel’ and cheaper to maintain than traditional petrol cars. And EVs themselves are also becoming more affordable, largely thanks to the plummeting cost of EV batteries, down around 43% since 2016.

In the past, sales were limited by ‘range anxiety’ – the worry that even a fully charged electric car would run dry long before a petrol-driven car with a full tank. But this is becoming less of a concern, with EVs now on the market in Australia that can run for 500 kilometres on a single charge.7

Good news for the planet?

Underlying all of these changes is the global push to reduce carbon emissions. And there is no doubt that EVs are an important step towards a net zero emissions future. Yet that doesn’t mean they are cost-free for the environment. There are still questions over how ‘green’ the current EV batteries really are, given their use of elements like lithium and nickel, both of which have been associated with severe mining pollution and other environmental concerns.

And ultimately EVs are only as carbon-free as the energy grids that power them. Which means that, unless we can replace coal-fired power stations with renewables as we electrify our vehicle fleet, the environment is still impacted.

What does it mean for investors?

For investors, the EV revolution presents both opportunities and risks. The huge investment already underway in EVs and charging infrastructure has the potential to generate significant returns for investors over several decades – provided they can identify the right investment vehicles. Yet there are also risks for those who remain exposed to traditional energy sectors, including the possibility of stranded assets.

Already, Australia’s largest superannuation funds are divesting from fossil fuels as they seek to reduce risk and honour their commitment to achieving net zero by 2050.8 And there are signs that individual investors are beginning to do the same, with a record US$20.9 billion flows into US sustainable funds in the first half of 2020.9

If you’d like to learn more about responsible investment options, speak with us to find out more.

Reference:
1. CNBC, Elon Musk is now the richest person in the world, passing Jeff Bezos,8 January 2021
2. Reuters, Tesla market value crosses $800 billion for the first time, 9 January2021
3. General Motors, Our Path to an All-Electric Future
Drive, Ford’s bold plan to make electric cars affordable, 9 November 2020
4. International Energy Agency, Global EV Outlook 2020
5. Forbes, Plugging into the future: The electric vehicle market outlook, 2020
6. Bloomberg Green, Electric Car Charging Stations Are Finally About To TakeOff, 2020
7. NRMA, Your questions answered – Electric Cars in Australia, 2021
8. Business Insider, Australian super funds are quietly divesting from fossil fuels – but activists say they should convince companies to do better instead, 1 February 2021
9. CNBC, Sustainable investing is surging, 5 November 2020