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Electric Vehicle Stocks Are Hot, But Will Investors Refocus Attention On Batteries?

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Investment in the Electric Vehicle (EV) industry has flourished like never before. A boom in EV stocks is being driven by the inevitability that internal combustion engine (ICE) cars will make a wholesale move to EV in the next decade. The explosion in EV purchases hasn’t yet materialised, but there is an increased confidence in the industry’s long-term growth.

A fall in the price of oil during the pandemic, an economic downturn and a drop in global auto sales have not dampened the exuberance investors feel for the EV market. A healthy mix of stricter regulations against ICE cars, increased financial and charging infrastructure support for plug-in vehicles, economies of scale, auto companies’ advertising campaigns and improvements in technology have led more consumers to embrace EV. This is compounded by market confidence that Tesla will be able to maintain its technology edge and help corral the overall market upward.

Until now, the boom in the exorbitant valuations has been driven largely by U.S. and Chinese companies. At $670 billion, Tesla’s market capitalisation is now worth as much as the combined market cap of the nine largest car companies globally. Tesla expects to sell at least 500,000 electric vehicles this year worldwide.

General Motors has invested $75m into electric pick-up truck manufacturer Lordtown Motors, which has presold more than 100,000 vehicles. The truck’s major selling point is that it is powered by four electric hub motors, which will help deliver varying amounts of torque to each wheel.

Another U.S. unicorn startup Fisker announced a major partnership with Taiwanese company Foxconn to develop what they call a breakthrough EV, with annual production of 250,000 cars initially in two years’ time.

Chinese startups in the EV space have also seen high valuations. XPeng is an EV manufacturer listed on the NYSE, which expects to deliver about 25,000 sedans and SUVs in 2021. In December, it was valued at a staggering $1.7 million per vehicle, or more than $50 billion for the company overall. EV manufacturer Nio from China delivered just over 7,000 vehicles in January this year, and yet could touch a $100 billion valuation soon.

The hope is these companies can change the economics of the industry, with internet-based pre-orders sales like Tesla and Lordtown have, combined with IP-laden software that will make the vehicles do more, better.

The interesting feature about this investor interest is that it seems to be primarily focused on the finished vehicles themselves. Is it a case of putting the egg before the chicken? 

EVs are more expensive than normal cars and sales are still relatively low. China’s electric-car market, one of the major growth engines, is struggling as the government has phased down buyer subsidies and the lockdown has depressed short-term demand. India, where incentives have improved, is unlikely to be able to pick up the slack.

There are only a few examples of companies, like Facedrive, that have achieved unicorn status in the EV space by doing something other than building cars. Facedrive provides app-based solutions for transportation, such as ride sharing and payment processing. It purchased the EV subscription service Steer in September last year at a valuation of over $3 billion. Blink charging, which provides charging infrastructure, has achieved a market capitalisation of $1.6 billion so far this financial year.

As EV valuations boom, investors may look further down the supply chain market, refocusing from EVs to cashing in on batteries as a less exploited opportunity in the EV supply chain

While lithium-ion batteries dominate the EV battery space, they contain expensive materials and are wound up in a supply chain largely controlled by China. However, innovation in alternative battery technologies such as hydrogen, solid-state and sodium-ion is picking up pace, offering alternative EV battery solutions.

Texan energy company Phillips 66, is moving into the battery space with an extensive technical collaboration with British sodium-ion battery maker Faradion to develop lower-cost and higher-performing anode materials for batteries. And with markets like Australia and India warming to sodium-ion batteries, the company seems set for an IPO in the coming year.

Britishvolt, an EV battery business, has partnered with Siemens and is starting construction on a 3,000-job gigafactory - after it raised £2.6 billion from Saudi and Scandinavian investors. AMTE Power is due to list on the AIM later this year to raise funds for production of battery cell tech development. 

Some analysts think the market for EV may be frothy and in part driven by a FOMO on the next Tesla, which explains the egregious valuations today. But where EV valuations may be overblown, there’s a chance companies earlier in the supply chain will begin to enter the limelight in the next wave of cleantech investment.

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