NEWS & MEDIA
In the electric cars market things are speeding up14 November 2017
Winds of change are sweeping across the transportation industry, with electric cars increasingly gaining mainstream acceptance. Led by Tesla, which has set the trend of looking towards electric vehicles, the number of these cars on roads rocketed to about 2 million at the end of 2016. This is according to the International Energy Agency (IEA). A record was set in 2016, with over 0.75 million new registrations, over 40% of which were in China. Bloomberg New Energy Finance (BNEF), say electric cars will account for about 54% of new car sales globally by 2040. They predict the price of batteries, a key cost component, will decline dramatically in the future, and in about two decades sales of electric vehicles will overtake those using internal combustion engines.
The value of government support
Another key driver for the shift towards electric cars is government support, through incentives and subsidies. China recently issued a regulation requiring most automakers to sell a minimum number of new-energy vehicles every year from 2019. Car manufacturers need to obtain a minimum ‘credit score’ or face fines. Norway, the most successful in terms of market share across the country, is considering terminating sales of gasoline and diesel vehicles by 2025. Electric cars are exempt from car-purchase tax and the 25% sales tax applicable to all goods. Additionally, charging at municipal power points is free, and electric cars can use bus lanes. Similarly, electric vehicle momentum is picking up in the US too. The government currently grants incentives to owners in the form of tax credits amounting to a maximum of $7,500. In Europe, Britain has joined France in pledging to end new petrol and diesel car sales by 2040.
Considering the growth potential for electric cars, most global automobile majors are vying for a share of the expanding market. Numbers for the seven months to July this year indicate that Tesla, a player focused on the electric cars segment, is the market leader. However, key players in the global marketplace also include BMW, BYD, BAIC, Nissan, Toyota and Chevrolet.
Tesla has been a trend setter in the electric cars marketplace and its cars are known for exceptional performance, functionality and styling. Owned by billionaire Elon Musk, it dominates the electric cars market in the US and sold over 45% of all such vehicles in the country during the first half of this year. Its products include the Model S and Model X, which compete in the extremely competitive premium sedan market and the new Model 3, a budget version sedan designed for the mass market.
In 2016, Tesla reported revenue of $7 billion, as deliveries of its new Model X SUV ramped up steeply during the year. Especially relevant is their gross profit which surged 73%, from $924 million in 2015 to $1.6 billion. Tesla delivered just over 76,000 vehicles in 2016, up 51% compared to 2015.
Tesla has aggressive ramp-up plans for the next two years. Aiming to manufacture 5,000 Model 3’s a week by the end of 2017, they’ll ramp up to 10,000 in 2018. Following the launch of Model 3, Tesla plans to introduce vehicles for a broader cross-section of the consumer vehicle market. Self-driving cars and a semi-truck are also on the anvil.
Competitors are getting their act together
Competitors also have aggressive plans for the market. BMW will offer 12 electric car models by 2025, bringing a wireless charging pad to the market in 2018. Aiming at 30% of their output by 2022, the Renault-Nissan alliance is also pushing forward. They’ve established a joint venture with Dongfeng Motor in China, developing a mini-SUV to go into production in 2019. BYD, the leading Chinese electric cars manufacturer, backed by Warren Buffett, will introduce new models to their market through a joint venture with Daimler. The BYD chairman has predicted that all new vehicles in China will be electric by 2030. Ford has entered into a joint venture with China based Zotye Auto to build electric passenger cars. Among others, Volkswagen plans to develop four affordable electric vehicles in the coming years as part of its goal to sell over 2 million battery-powered vehicles a year by 2025.
In light of the global push to replace fossil fuels with alternatives, the electric car market holds enormous potential. A successful transition from conventional vehicles now depends on how fast the electric car industry can improve affordability for consumers. Car companies are investing aggressively in technology and preparing themselves for the dramatic market shift. This will be a key market on investor radar for the coming decades.