BIS Research - Emerging Technology Market Intelligence

Strategizing Investment in Electric Vehicle Industry – Why Is It Important?

Jan 6, 2020 10:50:12 PM / by BIS Research

EV Webinar

With automakers setting ambitious targets for electric vehicle adoption and multiple start-ups and non-automotive companies investing in the electric vehicle industry, there are still several challenges that are restraining the growth of the market. For instance, there are certain risks that are overlooked by several companies while investing in the business. For more insights on how to strategize your investment in the EV business, attend the webinar on “Strategize Investments in EV Business-Transform Risks into Rewards” with Adalberto Maluf, BYD Brasil and Ryan Maughan, Avid Technologies on January 21, 2020 at 10:30 AM – 11:30 AM (PST).

Here’s a set of questions related to the EV industry and the insights by BIS Research analyst, Ajeya Saxena.

1. The cost competitiveness of EVs with IC engine vehicles is dependent on the battery cost. However, it takes several years to reduce the battery cost, so, how do vehicle manufacturers target vehicle sales in these years to meet their targets?

Ans. The high cost of electric vehicles has been a major bottleneck in the large-scale adoption of electric vehicles. Battery contributes a significant share in the electric vehicle cost and bringing down battery costs is important in order to ensure price competitiveness of EVs to ICE vehicles. However, reduction in cost requires significant changes in the battery chemistry and technology.

However, the automakers have set ambitious targets for electric vehicle adoption and it is necessary to identify the right customers before the EVs move into the early majority phase of their adoption. The battery chemistry has significantly improved in the past few years. Majority of new electric vehicles being launched have a range that is close to or more than 300 kilometres. Customers that buy cars might travel within a city in most of their trips however, while making an investment in a vehicle they would want a car that suits their occasional intercity trips for which the current range of EVs is insufficient. Also, lack of charging infrastructure availability in remote areas acts as a roadblock.

Therefore, identifying a customer segment where the current range of EVs meets the requirements in a cost-effective manner with the charging infrastructure being readily available is necessary for the industry. The shared mobility space offers just the right set of customers that could benefit from EVs. Ride-hailing companies that make several intracity trips in a day can easily run for an entire day on a single charge. The significantly less maintenance cost as well as fuel cost plays an important role in making EVs an attractive proposition for ride-hailing companies, whose vehicles run over 150 kilometres a day and require frequent maintenance and refuelling.

The total cost of ownership of a Tesla Model 3 as compared to a Toyota Corolla over a period of 10 years or a total distance of ~500,000 kilometres is significantly less for Tesla Model 3 and it results in significant profits for a company such as Uber. Similarly, last mile transportation along with car rentals can be potential target customers for EV manufacturers.

2. What is your take on multiple start-ups and non-automotive companies investing in the electric vehicle industry?

Ans. The electric vehicle technology has brought forth a disruption that will revolutionize the core technology of vehicle manufacturing. Such a disruption has not been witnessed by the automotive industry since the launch of Ford Model T back in 1908. Therefore, a multi-billion-dollar opportunity does exist without any doubt.

If we consider an EV as compared to ICE vehicle, the shift of the automotive industry from a core mechanical field to more of an electrical and mechanical hybrid is evident. Due to this shift, companies that have had expertise in the electrical industry are trying to enter the market with products such as motors, wirings, converters, and inverters, among others. At the same time, traditional mechanical companies are launching same/similar products. Since, the number of components in EVs has significantly reduced as compared to ICE vehicles, the market competition has certainly increased. Similarly, the charging business is witnessing the competition between traditional electrical companies = and oil & gas companies. Therefore, as the electric vehicle business begins to take over the traditional automotive business, the increased competition will result in reduced margins which eventually will lead to consolidation or business failures. The same is true for start-ups as well. Small-scale companies without the financial backing as compared to large scale industry players will fade away if they do not plan strategically while the industry is still a niche.

3. Does the imminently growing EV business possess any risks that are overlooked by the companies while investing in the business?

Ans. It is safe to say that the question that looms on the electric vehicle revolution is ‘when’ it will happen and not ’if’ it will happen. The revolution certainly brings forth a plethora of opportunities. The opportunities might be capitalized by the existing set of automotive companies in order to sustain their businesses or they might be capitalized by the companies that are completely new to the automotive industry.

The certainty of the multi-billion-dollar opportunity being present does not give assurances on the number of companies that can co-exist in this emerging ecosystem. Companies, today, invest in the EV business looking at the opportunity however, it is more important to identify the strategy that will make a particular company successful in one of the many business areas that are emerging along with the EV revolution. Without assessing the market competition, best practices, possible threats, and hidden opportunities, any investment in the EV ecosystem would be likely to not result in any fruitful profits. For instance, Dyson, a leading appliance manufacturer, had to give up on its plans of making its own EVs after it realized the intense competition and pricing pressure that the business faced. Also, competing with the major automakers that have decades of experience in handling supply chains and customers in the automotive industry would not be an easy task for a new company in the industry despite the cash-flow which was available with an established company such as Dyson.

Hence, strategically investing in the EV business is essential to tap the opportunity galore that is presented by the EV industry.

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