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Electric vehicles are about to revolutionise the way we drive

Electric vehicles are about to revolutionise the way we drive

Around the world, there are over 1 million electric vehicles (EVs) on the road, and it’s forecast this number could reach 20 million by 2020.  Which means that EVs promise disruption and opportunities on a grand scale – for auto industries and a wide range of other businesses.

The rate of adoption of EVs is one of the central issues.  At the moment, EVs represent a tiny part of the Australian new car market and an even tinier part of the total car fleet.  While they offer materially lower operating costs than traditional cars, their uptake is currently constrained by high capital costs, lack of charging infrastructure, limited range, and lack of choice for consumers, among other things.

However, the ground is clearly shifting.  Some things to note include:

  • Capital costs are coming down steadily, as manufacturers scale up and technology improves. For example, according to a recent McKinsey&Co report, EV battery costs fell from ~$1,000 per kWh in 2010 to ~$227 per kWh in 2016, and further falls are expected.
  • According to some forecasts, the declining production costs for EVs will see them reach economic parity with traditional vehicles around 2021, without allowing for externalities like carbon emissions or health benefits.
  • If you factor in the potential environmental and health benefits, the economics look even more appealing. For this reason, some governments already offer significant incentives to encourage adoption of EVs by consumers.  Norway is one of the best examples, with EVs capturing an estimated 23.5% share of Norway’s total auto market in 2016. Those countries committed to the Paris climate agreement will no doubt consider the role of EVs in meeting their commitments.
  • Auto makers are ramping up investment in electric models, with consumer choice set to expand rapidly in the years ahead as new models are released. The recent announcement by Volvo that it plans to cease producing cars powered only by combustion engines in 2019 is one of the more prominent examples.
  • Other barriers to EV adoption are also declining as a result of investment and technological investment. As battery and charging technology improves, weight and range improve and infrastructure develops, the case for EV’s will further strengthen.

While it is very hard to predict the timing, it seems reasonable to expect an “S-curve” of adoption, whereby change happens slowly for an extended period of time, and then starts to move very rapidly as an inflection point is passed.  The development of autonomous cars, which can exploit lower EV operating costs by facilitating higher vehicle utilisation may contribute further to the shift.

One thing that seems clear is that the automotive world will start to look very different in the coming decades. The challenge for investors is to try to understand the rate at which change might happen and which businesses might be most affected by it.  This then needs to be thoughtfully incorporated into investment decisions in terms of both value impacts and risk profiles.

This may not be the most urgent issue on an investor’s plate today, but it is likely to become a large and challenging one requiring considerable thought.  With that in mind, we think it may pay to get an early start.


Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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    • If the market evolves quickly it will certainly have an effect, given the relative lack of moving parts in EV drivetrains. The trick is to understand how quickly these changes might happen and whether that is appropriately factored into current share prices.

  1. “It is mostly thought that electric vehicles (EVs) are far less harmful for the environment than traditional internal combustion engine vehicles (ICEVs). Since EVs do not emit any greenhouse gases while they are being driven, one is easily led to think that they have no environmental footprint. This is untrue for a number of reasons. Firstly, EVs run on electricity, and in the United States most electricity is generated from the combustion of fossil fuels. According to the US Energy Information Administration, as of January 2015 fossil fuels meet 82% of US energy demand. [1] Secondly, the production of EVs has a significantly larger enviromental footprint than that of ICEVs. This is mainly because of their intricate lithium-based batteries (Fig. 1), which are costly to make and even more costly to dispose of.”

    How Long Can Electric Vehicle Batteries Last ?

    • Quite right, Xiao. While EV’s offer lower environmental imapct than ICE, to get the “full” benefits will require a change to power generation infrastructure over time. As an interesting aside, while battery life is an issue for EV’s, we have been told that early indications are that an EV drivetrain may last 4-5x as long as an ICE drivetrain. One of the issues that has arisen in early experience with Teslas seems to be that the door handles wear our before the mechanical parts do!

  2. EV’s could so easily be rendered obsolete by hydrogen powered vehicles. Plenty of technical challenges in front of both however. The Japanese are making some big H2 statements, it’s going to be an interesting few years in the car game.

  3. umm… look up Tony Seba on youtube for EV’s and automation, also recently CEO of VolksWagon came out and said they can buy batteries at 100 Euro KWH. Further looking at number of moving parts in EV’s being 20 as opposed to 2000 in combustion engine, the jig is up for ICE cars. Matter of when not if.

  4. I have often thought that Australia with its vast distances to cover, will never be a total convert .
    I do agree with the previous comment as if you strip out subsidies, I doubt the sales would be any where near the incredibly efficient internal combustion engine .
    The sheer joy of hearing that motor ,I believe is something that a lot of motor enthusiasts will never give up

  5. Justin Carroll

    “… Norway is one of the best examples, with EVs capturing an estimated 23.5% share of Norway’s total auto market in 2016…”.

    Yes, but you can talk about the growth of EVs in Norway without talking about the government subsidies that accompany them like:

    1. 100% exemption from highway tolls;

    2. free electric charging (courtesy of Norwegian taxpayers); and

    3. exemption from Norway’s hefty 25% VAT on new ICE cars.

    Not surprisingly, surveys in Norway have found that 72% of buyers of EVs buy them for economic reasons and only 26% for environmental reasons: https://www.ft.com/content/84e54440-3bc4-11e7-821a-6027b8a20f23?mhq5j=e2

    When government subsidies are removed, as they recently were in Hong Kong and before that in Denmark, sales of EVs collapse: https://www.wsj.com/articles/teslas-hong-kong-sales-gutted-by-tax-change-1499598003; https://www.bloomberg.com/news/articles/2017-06-02/denmark-is-killing-tesla-and-other-electric-cars

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