Electric Vehicle Production Hits the Gas in 2021

Remember the children's story, The Tortoise & The Hare? A boastful rabbit challenges a turtle to run a race, thinking that his speed guarantees him the win. But overconfidence and a mid-race nap end up costing the hare the race, as the tortoise keeps a slow and steady pace across the finish line.

The age-old story teaches children that the fastest isn't always the clear winner. It's also a good reminder for us as investors. Right now, there's a lot of new technologies stealing the spotlight, and several companies boast of being the leaders in the space. But the competition is heating up, and naming a clear winner is not so cut and dry.

Take the red-hot electric vehicle (E.V.) market as an example.

Worldwide E.V. sales soared 65% between 2017 and 2018. A total of 2.1 million vehicles were sold, and these sales remained steady in 2019.[1] The global pandemic, of course, hindered E.V. sales in 2020, but demand for E.V.s is ramping up again in 2021. The E.V. market is forecast to grow exponentially in the coming years.

According to a recent report from MarketsandMarkets, the E.V. battery market is expected to expand at a 25.3% compound annual growth rate (CAGR) in 2021 and exceed $67 billion by 2025.[2] As a result, the global E.V. market is anticipated to surge to $985.72 billion by 2027, or, in other words, it's expected to grow at a 17.4% CAGR.[3]

For many car manufacturers, that spells opportunity.

Tesla (TSLA) was first out of the blocks here in the U.S., and it remains a dominant player. Tesla has about a 79% grasp on the E.V. market in the U.S. More than 200,500 electric vehicles were registered in the U.S. in 2020, and Tesla vehicles accounted for 172,438 of these E.V.s.[4]

Despite Tesla's firm grasp on the E.V. market in the U.S., it's losing market share worldwide. Tesla's E.V. sales dropped 12% in Europe in 2020. Volkswagen AG (VWAGY) recently revealed that it sold 49,704 EVs in Europe in December alone, nearly double the Teslas sold that month.[5]

Volkswagen's ID.3 model is what's capturing Europeans' attention, but the German car manufacturer has several attractive E.V. models. In addition to the I.D. family of vehicles, the Volkswagen Group also offers e-up! and e-Golf models, as well as the Audi e-tron and Porsche's Taycan.

Volkswagen isn't the only car manufacturer looking to knock Tesla from its pedestal. The Big Three U.S. manufacturers are also ramping up their E.V. production, especially in Europe.

Ford (F) recently revealed its plans to invest $1.0 billion in a German car manufacturing plant, intending to produce only E.V.s in Europe by 2030. The first European-built EV from Ford is expected to be available in 2023. The company's brand-new Mustang Mach-E is widely anticipated to become a popular model.

General Motors' (G.M.) goal is to produce only zero-emission vehicles (cars, SUVs, and pickup trucks) by 2035. The company plans to invest $27 billion in E.V. and autonomous driving vehicles over the next five years. They recently introduced the 2022 Chevy Bolt EUV and the 2022 Bolt EV in mid-February; both will be available this summer.

General Motors has been one of the earlier players in the American E.V. market. The company has sold more than 100,000 Bolt EVs worldwide in the past four years, and the Chevy Bolt was the number-two E.V. brand in the U.S. in 2020, with sales up 26% year-over-year.[6]

Then, there's Chrysler. Thanks to a merger between Fiat Chrysler and Groupe PSA, Stellantis plans to introduce an "electrified" version—electric, plug-in hybrid, or traditional hybrid—of each new vehicle it produces between now and 2025. The goal is across all 14 brands, including Jeep, Dodge, and Maserati.[7]

The competition is heating up in the E.V. market.

Interestingly, none of these companies, except Tesla, have any significant market share in the biggest E.V. market in the world: China. China accounts for about 50% of all global E.V. sales. An estimated 1.3 million E.V.s were sold in China in 2020.[8]

In its recent quarterly report, Tesla revealed that sales to China came in at about $6.66 billion in 2020, or double its 2019 sales of $2.98 billion. While Tesla is ramping up production at its Chinese factories, the U.S. is still Tesla's largest market, with $15.21 billion in sales in 2020. The reality is that Tesla faces stiff competition from China's home-grown E.V. manufacturers.

One of the most well-known Chinese E.V. manufacturers is BYD—or Build Your Dreams—as it captured the attention of the Oracle of Omaha. Warren Buffet invested in the company back in 2008. Today, BYD is only second to Tesla when it comes to E.V. sales; it sells 26 E.V.s per hour, while Tesla sells 42 E.V.s per hour.[9] The company's top-selling vehicles include the Tang SUV and the Han sedan.

Another Chinese E.V. manufacturer growing in popularity is NIO. The company introduced the ES6, an electric SUV, to China in 2019. NIO plans to launch in Europe this year. In 2020, NIO sold 31,430 EVs, which represented a 111% year-over-year increase.

Overall, it's too early in the E.V. race to declare who will cross the finish line first. Tesla came out of the blocks like the hare, taking the early lead worldwide. It hasn't made the mistake of resting on its laurels… yet. But the competition is now nipping at Tesla's heels, and it will be interesting to see if one of the "turtles" pulls ahead in the upcoming months and years.

If you are interested in learning more about our opinions on the auto industry and the impact of E.V.s, please give me a call. I'd love to hear from you!

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[1] https://www.forbes.com/sites/arielcohen/2020/10/26/plugging-into-the-future-the-electric-vehicle-market-outlook/?sh=1dfd5a639812

[2] https://www.prnewswire.com/news-releases/ev-battery-market-worth-67-2-billion-by-2025--exclusive-report-by-marketsandmarkets-301230722.html

[3] https://www.globenewswire.com/news-release/2021/02/09/2171832/0/en/Electric-Vehicle-Market-to-Reach-USD-985-72-Billion-by-2027-Consumer-Inclination-towards-Efficient-Hybrid-Cars-to-Aid-Expansion-states-Fortune-Business-Insights.html

[4] https://electrek.co/2021/02/16/tesla-owns-electric-car-market-us/

[5] https://www.bloomberg.com/news/articles/2021-01-27/vw-tops-tesla-in-bounce-back-year-for-europe-s-auto-incumbents

[6] https://seekingalpha.com/news/3661972-gm-unveils-chevy-bolt-euv-and-redesigned-bolt-ev

[7] https://www.cnbc.com/2021/01/19/from-jeep-to-maserati-stellantis-to-rollout-10-new-ev-models-in-2021.html

[8] https://fortune.com/2021/01/05/china-electric-vehicle-subsidies-sales-tesla

[9] https://www.forbes.com/sites/jamesmorris/2021/01/09/chinese-electric-vehicles-to-look-out-for-in-2021/?sh=f4acf9275ddd