Investing in electric cars

4 min read

The market for electric cars is changing.

With technological advances and rising consumer demand, linked with lower costs as different companies enter the market, this is giving way to exponential growth in investor interest in this market1.

Where some countries appear to be moving to embrace the changing industry, others, like Australia, have been slower on the up-take.

A growing international base

According to the International Energy Agency (‘IEA’)2, sales of new electric cars in 2017 surpassed one million units worldwide, reaching a record volume of 1.1 million sales. This represented a 54% growth in new electric car sales compared with 2016. The IEA’s definition of ‘electric vehicles’ includes battery electric vehicles (‘BEVs’), plug-in hybrid electric vehicles (‘PHEVs’) and fuel-cell electric vehicles (‘FCEVs’).

These sales took the global stock of electric cars to 3.1 million vehicles over the past 3 years, says the IEA - after crossing the 1 million threshold in 2015, and the 2 million mark in 2016. This is a significant increase from the 2,700 electric vehicles that were in use around the world in 2007.

To put the data in context, automotive industry research firm JATO Dynamics3 says that the total worldwide sales of passenger cars and light commercial vehicles (‘LCVs’) in 2017 were 86.05 million vehicles – up 2.4% – of which 82 million were cars, and 4.05 million LCVs. Comparing these numbers implies that Electric Vehicles (‘EV’s’) account for about 1.3% of global vehicle sales.

The IEA4 says more than half of global sales of electric cars in 2017 were in China, where in 2017, electric cars had a market share of 2.2%. There were more than twice as many electric cars sold in the Chinese market (about 580,000 in 2017) than in the United States, which plays host to the second-largest electric car market globally.

About 40% of the global electric car fleet is in China, where the number of electric cars on the road surpassed 1 million in 2017. Meanwhile the European Union and the United States each accounted for about a quarter of the global total.

In terms of the 2017 share of sales, the IEA put Norway as the world’s most advanced EV market, with EVs accounting for 39% of new car sales. Iceland and Sweden are the next two most successful markets with electric vehicles achieving 11.7% and 6.3% share of sales.

Australia is falling behind

Australia, however, is lagging in the EV take-up rates.

According to a car comparison site, WhichCar5, only 1,123 electric cars were sold in 2017, out of a record 1,189,116 new cars sold in Australia – representing just 0.09% of market share. This was still an improvement from 2016, when just 765 electrically chargeable vehicles were bought, or 0.06% of the then-record 1,178,133 new car sales. The situation is unclear because Tesla does not report its sales, however WhichCar estimates that Tesla sales increase electric vehicles’ market share in Australia to about 0.18%.

The IEA6 state that through tax incentives and government procurement directives, as well as strict new emissions rules, electric vehicles have followed a take-up pattern strongly driven by state support. China surpassed the US as the largest market for EVs in 2016, helped by government subsidies and mandated EV production quotas for carmakers that aims to improve air quality in its cities and foster technical progress. European market leader, Norway went for tax incentives. For example, the stamp duty relief and subsidies in areas like registration. Norway also exempts EVs from road tolls, gives free car ferry travel, free recharge sites, free parking, and access to bus lanes.

Governments are also mandating the move to EVs with the UK government announcing that all new cars sold after 2040 will need to be electrified in some way, whether it’s as hybrids or pure electric vehicles7.

Australia’s relatively slow rate of electric vehicle uptake stands in contrast to positive consumer attitudes. A 2017 report commissioned by the ­national body representing the industry, the Electric Vehicle Council, and written by zero-emissions advocate ClimateWorks Australia – titled The State of Electric Vehicles in Australia – found that Australian consumers view EVs positively. It stated that more than half of people surveyed would be willing to consider buying an EV, and that 19% had researched the options. But, the report said that purchase cost and the distance able to be travelled (on one charge), remain key concerns. Battery technology and EV design is however addressing this.

As it currently stands, Australia does not currently have an overarching electric car incentive or policy framework on EVs and for EV demand to flourish, Australia needs to settle on the policy and regulatory levers it will use between the commonwealth, states, territories and local government8. This will likely be a mix of government EV procurement, engine efficiency/ emissions regulations, EV purchase incentives and an investment in public charging infrastructure.  Increased EV model availability, which is on the way in Australia, is also likely to drive uptake.

Energy and Environment Minister, Josh Frydenberg, predicts9 that the number of electric vehicles on Australian roads to grow from an existing 4000 to 230,000 within seven years, and to one million by 2030. However this will depend on battery technology and charging infrastructure.

Globally, the IEA projects10 that (taking into account existing and announced policies) the number of electric light-duty vehicles (‘LDVs’) on the road will reach 125 million by 2030. If the policy ambitions continue to rise to meet climate goals and other sustainability targets, then the number of electric LDVs on the road could be as high as 220 million – comprising of 130 million battery electric vehicles and 90 million plug-in hybrids.

Some analysts at Wellington Management think that11 EV sales could be 20% of worldwide passenger car sales by 2025, and 20% of the global automobile fleet could be electric by 2030. ‘Once EVs hit 20% of sales, the move from 20% to 80% could happen very quickly’, they say.

Car companies moving to offer electric vehicles

If not already, auto manufacturers are scrambling to get involved.

Some car makers were quicker off the mark in EVs than others. According to JATO Dynamics12, a global supplier of automotive business intelligence, the Renault-Nissan-Mitsubishi Alliance is the largest seller of EVs, through its Nissan Leaf, the world’s best-selling electric vehicle – as well as the Renault Zoe and Mitsubishi Outlander. China’s BAIC Group is the second-largest seller, with its EC-Series. Although only sold with China, it competes with the Leaf as the biggest seller, ahead of the Tesla S. In terms of pure electric cars, Tesla is the top global seller, while the Toyota Prius Prime is the world's number one plug-in hybrid.

Several car makers have announced that they will stop building diesel engines. Porsche expects half of its production to be electric cars by 202313 and General Motors, Toyota and Volvo have all declared a target of 1 million in EV sales by 202514.

Implications for other industries

Growth in EVs may have major impacts in a number of non-automotive business areas, with insurance underpinning potential issues. Examples include the cost and availability of repair facilities and spare parts, fire risk while charging, and the implications of the cars’ silence in potentially adding to the risk of collision with pedestrians.

In mining, Lithium, graphite, nickel, and cobalt have the potential for significant demand growth due to the increasing use of batteries and increasing popularity of EVs15. And charging facilities are increasingly needing to be incorporated into the planning of property developments.

Not to mention the changes to road transportation, with autonomous vehicles (AVs) set to change the world and business even more.

Considerations for investors

For those actively interested in the EV space, there are a range of options to consider in an investment portfolio.

While some may consider direct share investments into car manufacturers, others might look to peripheral industries, such as battery manufacturers or even select mining companies that supply those manufacturers.

As a developing space however, investors should be wary of the risks involved with direct company shares. Established players may have better financial backing for their research and attempts to offer new EV products, but may, on the other hand be more expensive or more subject to other market conditions. Newer entrants may be cheaper in some instances but with a higher prospect of loss if they cannot establish a competitive market position and financial backing.

Many investors may already find their portfolios include established car and battery manufacturers and resource suppliers, and in turn, offer some exposure to the EV space. For example, Wellington Management (which manage strategies included in BT’s range of MySuper and Wholesale Diversified Funds), consider themes such as the growing EV space actively in their strategies. Or alternatively, some companies, by virtue of size or other specification, may form part of existing index funds and exchange traded funds (ETFs).

1. Think Progress https://thinkprogress.org/charge-your-electric-car-in-five-minutes-and-other-game-changing-battery-advances-a04590ab77a9/
2. IEA http://www.iea.org/gevo2018/
3. Jato Dynamics  http://www.jato.com/global-car-sales-2-4-2017-due-soaring-demand-europe-asia-pacific-latin-america/or-electric-vehicle-sales
4. IAE http://www.iea.org/gevo2018/
5. WhichCar https://www.whichcar.com.au/car-news/how-australia-compares-globally-for-electric-vehicle-sales
6. IAE http://www.iea.org/gevo2018/
7. UK Government https://www.gov.uk/government/news/government-launches-road-to-zero-strategy-to-lead-the-world-in-zero-emission-vehicle-technology
8. Arena Wire They’re supposed to be taking over. So where are all the electric cars? 11/07/2018
9. News.com.au Australians are missing out on an ‘extraordinary’ opportunity by snubbing hybrid electric cars 08/02/2018
10. Global EV Outlook 2018 https://webstore.iea.org/download/direct/1045?filename=global_ev_outlook_2018.pdf
11. International Insurance https://www.internationalinsurance.org/sites/default/files/2018-01/Power-on_Five-insights-on-electric-and-autonomous-vehicles_US.pdf
12. Jato Dynamics http://www.jato.com/global-car-sales-2-4-2017-due-soaring-demand-europe-asia-pacific-latin-america/
13. Electrek Porsche changes its mind on electric vehicles, plans 50% of its production to be electric within 6 years 26/07/2017
14. Forbes https://www.forbes.com/sites/sarwantsingh/2018/04/03/global-electric-vehicle-market-looks-to-fire-on-all-motors-in-2018/#1e359fc22927
15. Livewire https://www.livewiremarkets.com/wires/ideas-for-an-electrified-future?_sm_au_=iVV3VHrqjHfr0k3F 12/09/17

Information current as at 3 July 2018. This article has been prepared by BT Financial Group, a division of Westpac Banking Corporation ABN 33 007 457 141, AFSL & Australian credit licence 233714 (Westpac).

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