Quick unfiltered and undeveloped thoughts on the Electric Vehicles (EV) space and divesting from Tesla.*
Context:
In 2020 Tesla’s share price rose by more than 600%. Whether this was due to Tesla’s earnings and projected performance or simply due to ‘vibes’, it’s important to remember that this doesn’t happen often nor should you be investing capital you can’t afford to lose without having done your research.
If you’re a long-term investor, a better approach might be to explore this space from a thematic standpoint. How can you get exposure in the EV space, investing in less ‘speculative’ stocks?
EV problem space:
Most issues can be linked to, or are caused by, a surplus in, or lack of, supply and demand. In the EV space, demand and supply is impacted by some of the following:
- Development & Investments
- Infrastructure
- And more…
Development & Investments
Companies:
Companies like General Motors, Ford and Volkswagen have dedicated billions ($27bn, $11bn, $86bn respectively) towards electric and autonomous vehicles. Considering the lack of demand for EV’s partly due to the high-price point (the high price point influenced to some extent by the cost of lithium-ion batteries), this level of investment may lead to a decrease in price of the vehicles. Higher supply -> lower price -> meet demand at that price point. The more affordable EVs are, the more attractive it is for the everyday person. I.e. assuming that the majority of people care about the environment and are presented with an EV and an ICE vehicle with the same price, we can expect most of them to purchase the EV.
However, this is quite a strong assumption. For the most part, not enough people care about the environment to buy an EV without a strong incentive or without facing any direct consequences (carrot & stick). Furthermore, considering there are questions around the longevity of the EV, the lithium-ion batteries exploding, and the lack of infrastructure (some of which I’ll expand on) it’s no surprise there’s not a strong desire to buy an EV. Finally, who’s to say the amount these companies are investing will result in cheaper EVs.
Still, there’s no harm in exploring auto manufacturers other than Tesla to gain an understanding of the landscape.
Batteries:
On the topic of lithium-ion batteries…
The price of lithium-ion batteries**, previously a barrier to entry, has considerably decreased since 2010. Expanding production probably influenced the price drop; linked to this is the fact that manufacturers have gradually shifted away from expensive battery ingredients such as cobalt and more towards cheaper nickel alternatives.
However, while lithium-ion batteries have not yet reached cost-parity with fossil fuel alternatives, this remains a cause for concern. Whoever plays the biggest role in reducing the cost of lithium-ion batteries, whether via innovation or otherwise, will have significant influence.
You can get exposure to this space by investing either in producers of lithium-ion batteries — though a number of auto manufacturers have begun working on this themselves — or anything adjacent (i.e. General Motors has partnered with LG Chem on the production of their batteries so you could explore LG Chem). Or you can take a look at the largest miners of the ingredients needed for these batteries (i.e. largest cobalt mining companies, etc.).
With that being said, personally I have two concerns.
- I’m not perfect and my morals don’t always align with the majority; however, considering most mining companies tend to be extremely exploitative (see what’s happening in DR Congo), I would be at odds directly contributing to that.
- In addition to that, I do not have enough knowledge on how lithium-ion batteries are disposed of and to what extent the disposal of lithium-ion batteries impact the environment. Considering research in Australia has shown that approximately 2% of their ~3,000 tone of lithium-ion waste is recycled, I welcome innovation in this space and view companies who focus on solving this as another area to invest in.
Infrastructure
Charging stations
While EVs grow in popularity, there are still relatively few charging stations. This is a problem for those who tend to travel long journeys or for those with an EV that does not have a long-lasting battery. This space can be dominated by: the government; existing auto manufacturers; other utility companies.
As part of his infrastructure plan, Joe Biden has ‘committed’ to installing 500,000 charging stations. This could encourage more people to buy EVs knowing that they have more opportunities to charge.
Other auto manufacturers like Tesla have taken the installation of charging stations into their own hands. However, though initially free, Tesla now charges some for the use of their charging stations. This could be lucrative for the company, and any other auto manufacturer that takes this approach; still, to what extent does it deter people from buying EVs?
We have also seen other companies such as BP Plus (UK) set up their own networks and charge a subscription fee, allowing them to increase their customer LTV.
In this regard, whoever’s responsible for installing the charging stations and maintaining them could be in a strong position. The automotive chain has a number of moving parts, controlling any one of them places you in a position of influence.
Utilities
Considering there are also charging stations in parking garages and outside of businesses, utility companies have a vested interest. Whether involved directly or indirectly, the increase in the consumption of electricity will benefit some of these utility companies, especially as ownership of EVs grows.
And more
Attention economy
Depending on which EV you own, you may have taken note of how long it takes to charge an EV. While it is in the interest of auto manufacturers to reduce the length of time it takes to charge an EV, there is an angle here.
The attention economy has garnered more and more interest in recent years. With so many companies fighting to get and keep your attention, it is not outlandish to say the next steps for a number of these companies is to infiltrate your cars and become even more ingrained in your life. Considering you can already use Netflix and YouTube in a Tesla, I wouldn’t be surprised if we see the emergence of partnerships where these companies work with each other to keep you as a life-long customer.
Data
With that being said, the information on you that can now be gathered has increased if you own an EV. As well as knowing what you’re watching or listening, data on the number of people in the car, where you’re coming from, where you have stopped to charge your car, and where you’re going, will not be difficult to collect. Data is the new currency and there are plenty of buyers out there looking to target you.
Conclusion:
Whether people are interested in EVs because they care about the environment or because of government regulation (i.e. the government penalising those who do not have zero-emissions vehicles or auto manufacturers — a topic I would like to explore further), there’s no denying the direction we’re going in. As interest in, and ownership of, EVs increases, you can get exposure in a number of ways without having to invest in Tesla.
- Other auto manufacturers who are investing in the development of EVs
- Lithium-ion battery manufacturers
- Companies focused on mining the ingredients needed for the batteries
- Companies developing charging stations across the country
- Utility companies
- Entertainment companies, or similar, partnering with auto manufacturers (short-term win)
- EV ETFs
*As you can tell by the writing, I was simply dumping my half-baked thoughts. I will be refining my thought process at a later date.
This is not financial advice. Do your due diligence. Don’t invest more than you can afford to lose.
**Update (10:45am, Saturday 16th Jan 2021): BBC article on the price of lithium increasing again.
