Electric Vehicle Adoption

Are the projection likely to be realized and is the S-curve consumer adoption model applicable?

Summary

This article will identify the limiting factors that will make the projected “death of the internal combustion engine” unlikely by the consensus timeframe of 2030. We will also explain the investment portfolio implications of our belief that electric vehicles will not achieve nearly as high a rate of adoption by 2030 as the consensus projections suggest, and how Berman Capital Group is positioning of portfolio for this.

What is an S-curve?

An s-curve is an adoption model mainly used for the adoption of new consumer products. It is a perfectly reasonable model to simplify the stages for the adoption of a new product. The trouble starts when we begin utilizing it too broadly.

Standard S-Curve Model

Normally an s-curve adoption model can be seen for the adoption of consumer technology; think the personal computer or smartphones, while on the service, these products seem to have a lot in common with electric vehicles, in no small part because companies like Tesla have marketed themselves as a fast-growing tech company rather than the vehicle manufacturers they really are, when you dig a little deeper it becomes clear that there are some sizable differences that make this kind of exponential growth unrealistic for the adoption of electric vehicles.

A car is, for most people, either the first or second (after a house) most expensive purchase someone makes; because of this fact, cars are a much longer cycle purchases than a smartphone; we know this seems obvious, but it is important in understanding why the timeframes on most projection for total electric vehicle adoption are unrealistic.

Expense

Electric vehicles are, across the board, more expensive than comparable internal combustion cars; for example, the new Ford f-150 lighting is priced starting at just under $50,000 while the non-EV Ford f-150 is priced starting at just under $34,000. While this price differential will not prevent a portion of the population from buying EVs unless this price differential closes materially, we do not see a reality in which all new car sales are EVs by 2030; there is always going to be a considerable portion of the population for whom $16,000 is better spent elsewhere.

Convenience

Unlike the personal computer or the smartphone, which were far superior to what they replaced, electric vehicles are objectively not. The current generation of electric vehicles are still lacking in several critical aspects that will serve as the limiting factor of future large-scale adoption. There are two main factors in which electric vehicles are worse than internal combustion vehicles:

1. Range, most electric vehicles still do not have ranges on par with internal combustion vehicles. The average range of an electric vehicle on sale today is 217 miles, whereas the average internal combustion car has a range of 413 miles, almost double that of the average EV. These figures do not even take into account the real-world variables that limit range. An electric vehicle’s battery is a temperamental piece of technology, too hot or cold, and its battery can lose a considerable portion of its stated range; at temperatures below 20°F EVs can lose 12% of their range, adding in demands on electricity such as heating and the loss in range can be as high as 40%.

2. Battery charging is the other aspect in which electric vehicles are woefully inadequate in comparison to internal combustion cars. According to the US Department of Transportation, on average, it takes an EV over 4 hours to charge from empty to 80% using a 240 v AC charger (public charger). I, in fact, timed myself to see roughly how long it takes to fill my car's 21-gallon gas tank from almost empty, and from the time I turned off the engine to the time I was back on the road, was a little less than 5 minutes. Obviously, there are numerous ways around this problem, from charging overnight to installing a lot more public chargers, but if the goal is to have 100% of the cars on the road be EVs, these workarounds are unlikely to cut it for everyone.

240-volt AC Charger

---

Berman Capital Portfolio Positioning

We have been short several names in the electric vehicle start-up, including Rivian, Lucid Group, Faraday Future, and Fisker. It is our continued belief that these companies will continue to have difficulties keeping their costs down and making any profits on the vehicles they produce. While a company like Tesla had a first-mover advantage that allowed it to scale when it was the only game in town, these more recent EV makers do not have that benefit, and we believe they will struggle to compete with the legacy car manufacturers that are now churning out EV models. Legacy car manufacturers have several edges that will make competing with them difficult:

1. They already have the scale and expertise in vehicle manufacturing; this scale allows them to better negotiate prices with suppliers, keeping production costs under control, something that EV start-ups notoriously had problems with (see article).

2. Legacy car manufacturers already have profitable internal combustion car divisions, which will be able to offset the initial loss-making investment in their EV divisions.

EV Pickup Truck | Rivian R1T

---

Conclusion

All this is not to say that we do not believe that eventually, and especially for the non-commercial vehicles market, electric vehicles will eventually achieve dominance. It is, however, our argument that this adoption process will take much longer than most expect. In the meantime, we believe that many of the currently loss-making electric vehicle start-ups will run out of money and either have to finance themselves by issuing more equity, diluting current shareholders, or by simply going out of business.

For more information about Berman Capital Group LLC or our research, contact us at: info@bermancapitalgroupllc.com

---

Disclaimer:

Opinions expressed herein by the author are not an investment or vote recommendation and are not meant to be relied upon in investment or voting decisions. The author is not acting in an investment adviser capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC or CSA filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable but have not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication and are subject to change without notice. Funds the author advises may own shares in the securities discussed and may buy or sell shares without any further notice. This is not a solicitation or recommendation to vote for or against the transaction discussed. The note does not constitute an offer to sell, or a solicitation of an offer to purchase, any securities. Any such offer or solicitation will be made in accordance with applicable securities laws.

The note is being provided on a confidential basis solely to those persons to whom this quarterly note may be lawfully provided. It is not to be reproduced or distributed to any other persons (other than professional advisors of the persons receiving these materials). It is intended solely for the use of the persons to whom it has been delivered and may not be used for any other purpose. Any reproduction of the quarterly note in whole or in part, or the disclosure of its contents, without the express prior consent of Berman Capital Group LLC (the “Company”) is prohibited. No representation or warranty (express or implied) is made or can be given with respect to the accuracy or completeness of the information in the quarterly note. Certain information in the monthly note constitutes “forward-looking statements” about potential future results. Those results may not be achieved, due to implementation lag, other timing factors, portfolio management decision-making, economic or market conditions or other unanticipated factors. Nothing contained herein shall be relied upon as a promise or representation whether as to past or future performance or otherwise. The views, opinions, and assumptions expressed in this note are subject to change without notice, may not come to pass and do not represent a recommendation or offer of any particular security, strategy or investment. The note does not purport to contain all of the information that may be required to evaluate the matters discussed therein. It is not intended to be a risk disclosure document. Further, the note is not intended to provide recommendations, and should not be relied upon for tax, accounting, legal or business advice. The persons to whom this document has been delivered are encouraged to ask questions of and receive answers from the general partner of the Company and to obtain any additional information they deem necessary concerning the matters described herein. None of the information contained herein has been filed or will be filed with the Securities and Exchange Commission, any regulator under any state securities laws or any other governmental or self-regulatory authority. No governmental authority has passed or will pass on the merits of this offering or the adequacy of this document. Any representation to the contrary is unlawful.