The electric vehicle (EV) market has taken the market by storm over the past year, with the world of finance looking to the future more than ever. Companies like Tesla (TSLA) and Chinese EV giant Nio (NIO) have seen crazy 4-digit percentage returns since the March lows.
Analysts and investors are putting much more value on the opaque sales projections 5+ years out with the ultra-low interest-rate environment, which have significantly dropped the denominator in long-term valuation models. The markets are pricing in a much greener world in the not-too-distant future where autonomous EV’s rule the road.
Now every automaker and its subsidiaries are scrambling to catch up to the mounting EV competition as the future of traditional combustion engines looks increasingly antiquated.
The Automotive Giants Adaptation
Ford’s (F) new CEO, Jim Farley, is eager to prove himself as a forward-thinking leader. He has vowed to spend $22 billion on smart EVs and an additional $7 billion in autonomous driving over the next 5 years.
GM’s (GM) CEO, Mary Barra, has pivoted this automotive powerhouse’s focus from operational excellence to enhancing its technological positioning in this space last year. Cruise, GM’s self-driving car subsidiary, has just teamed up with Microsoft (MSFT), who just invested an additional $2 billion into the business, valuing the company at $30 billion.
Cruise’s recent partnership with Microsoft is strategically beneficial to both parties. Cruise gets Microsoft’s cutting-edge cloud-computing capabilities with Azure and its best-in-class functionality. Microsoft receives exposure to the nascent space of autonomous transportation, which is still on its early development stages.
Volkswagen (VWAGY) maybe Tesla’s biggest competitor in the coming year, with the business projecting to produce 1 million EVs annually by 2023 and 1.5 by 2025. Tesla announced that it plans to deliver between 840,000 to 1 million vehicles in 2021, giving the EV giant approximately 20% of the EV market.
VW has been the largest investor in electric vehicle technology out of all the global automakers, with roughly 20% of its annual sales being pledged to EVs’ development over the next 5 years ($41 billion in total).
F, GM, and VWAGY have all soared in the triple-digit percentages since their COVID lows in March, with returns of 156%, 223%, and 100%, respectively. Investors are buying up these now market cap laggards to TSLA and even NIO as they are taking giants steps to ensure their presence in the future of consumer transportation.
The Apple Car
Apple (AAPL), the consumers’ champion of technological innovation and the largest publicly traded enterprise, isn’t missing out on the action either. With its $100+ billion in liquidity and $10s of billions in reliable free-cash-flow, there is no question that Apple has the capital to start its own car division, but whether it will be a profitable venture remains to be seen.
Apple EV car project has been years in the making and is expected to start production in 2024. Apple is rumored to be partnering with Hyundai-Kia for the manufacturing of these vehicles. I can only imagine that the Apple Car will be just as cutting-edge as its other consumer products, but this means big upfront costs for the company in the coming years.
The Wonderful World of EV SPACs
Tesla isn’t the only automotive unicorn start-up with market-disrupting aspirations. Companies like Nikola (NKLA), QuantumScape (QS), and now Lucid Motors is rumored to be making a deal to go public through a SPAC.
Nikola put a bad taste in investors’ mouths for unicorn alt energy automakers with the rise and fall of its share price and fraud allegations. Still, traders seem to have an insatiable thirst for putting on risk as of late, and Lucid Motors, a fresh up-scale EV company, looks to be a recent SPAC target.
It is rumored that Lucid CEO, Peter Rawlinson, is in talks with Churchill Capital (CCIV) to bring the business to the public markets. CCIV is up over 245% in the last 4 weeks due to this suspected deal, 46% this week alone.
QuantumScape
QuantumScape, unicorn startup backed by VW and Bill Gates, is another recent SPAC IPO in the EV space. QS has been all over the board since it was brought to the public markets last fall, and I have been waiting for a buying opportunity. I regrettably didn’t buy when I originally pitched this stock last October. QS is up triple-digit percentages since. I would be looking to buy this thing below $40 a share.
QuantumScape is driving the innovative-curve for the next cutting-edge batteries, the heart and soul of the electric vehicle space. The Bill Gates-backed EV battery supplier is developing the next generation of batteries utilizing lithium-metal, which has a significantly higher energy density than lithium-ion.
This forward-looking battery powerhouse is driving the EV revolution with mass-market adaptation in QuantumScape’s sights. Leveraging lithium-metal technology, the company hopes to achieve ranges of 300 miles or more, hyper-fast charging (less than 15 minutes), cheap vehicles (less than $30k), and extended battery life (more than 150,000 miles).
QuantumScape sees the entire automotive industry as its total addressable market at more than $450 billion in potential battery demand. Society is undoubtedly headed toward a world that runs on electricity, but it may take a decade before mass adaptation in the automotive world is feasible.
There is an enormous amount of uncertainty surrounding this next-generation battery enterprise, considering they are just in the product development stage. Still, the markets are optimistic about this business’s future, with a current valuation of $16 billion, way beyond analysts initial estimates.
According to QuantumScape’s 8-year plan, it doesn’t expect to generate revenue until 2024 and won’t be able to drive positive free-cash-flows until 2028. The automotive giant Volkswagen is the primary shareholder, giving investors confidence in the business’s legitimacy.
Final Thoughts
According to IHS Markit, there were nearly 2.5 million EVs sold in 2020 globally, and they have anticipated these sales to soar by 70% in 2021. The IHS is giving EVs a compounded annual growth rate of 53% through 2025, representing 12.2 million annual EVs or 12.2% of the projected global market.
No one wants to be left behind during this massive growth narrative or left holding only the combustion engine when that technology becomes obsolete or, worse: illegal. The world of cars is unquestionably headed towards autonomous electric technology. Now it is time to figure out how you would like to place your bets. I will personally be buying GM or F on dips.
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