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.
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:
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%.
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.
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:
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).
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.
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