The stock market index for electric vehicles is outperforming its general analogue. It means that the markets believe it, that the revolution is coming.
According to Bloomberg data, the performance of a collection of companies that derive significant sales from electric vehicles, energy storage technologies, lithium, cobalt and copper mining, and hydrogen fuel cells, has risen 12.55 per cent since the beginning of the year, compared to 12.46 per cent for the global stock market. Among the stocks, Tesla stands out, which has been bullish over the same period by more than 66%. Shares of Japanese giant Panasonic, which has invested heavily in car batteries, have risen 42% since the start of the year.
The stock of the Korean Samsung by 8%. The shares of Japanese electrical components manufacturer Nidec are up 12.46%, to name four of the top ten stocks with the largest market capitalisation. The same dynamic is affecting lithium, whose demand is almost entirely driven by electric vehicles. This is why, over the past five years, the price of this metal has risen significantly, from $287.17 to $743.66 per tonne, reaching a high of around $1,200 at the beginning of 2023.
The question on everyone's mind, however, is when the cost parity between an electric car and a conventional one will occur. Because with today's assembly platforms, the price differential in favour of the endothermic ventures persists even though it is becoming increasingly narrower.
Alessandro Michahelles, head of the Value Approach team in Banca Generali's Asset Management division, explains that "car manufacturers enjoy gross margins up to 700 basis points lower on electric vehicles than on internal combustion cars. Battery costs are the main factor in this margin dilution: the electric drivetrain incurs almost EUR 11,000 in additional costs. Consumers are mostly reluctant to pay the full premium for this change. In the medium term there is a premium for electric vehicles currently around 20 per cent". This prevents electric cars from conquering the mass market by cascading investment in charging infrastructure.
However, it is a foregone conclusion that this will happen. Globally, according to analyst Sanford Bernstein's considerations from his essay on the electric revolution, electric vehicles are expected to reach 40 per cent of the market in 2025 and 80 per cent ten years later. Three constraints remain: the availability of raw materials for batteries such as lithium and cobalt, the security of the supply chain now heavily skewed towards China with all the geopolitical implications that this entails, and convenience. The automotive industry is innovating by placing more emphasis on battery recycling.
But it is still not enough. Government incentives are trying to close this gap, but this exacerbates the cost to the public purse. Falling battery prices may also prompt governments to reduce the current generous subsidies. This is the way of Great Britain: the British government recently announced that it would tax electric cars starting in 2025 in order to counteract the recession and thus equalise costs for all motorists. The strategy is similar to that already envisaged by other countries, which, in the face of the ecological push for the spread of battery-powered cars, fear that the revenue from taxes on fossil fuels and vehicle ownership will collapse.
And it also unleashes furious controversy in Brussels, where more than a few, led by Italy, are calling for a derogation from the total switch-off of endothermic cars, voted by the EU Parliament, by 2035, replacing it with a softer landing, based on the principle of technological neutrality that does not attribute the drive to reduce CO2 emissions solely to electric cars. While a delegation of Republicans from Wyoming, USA, even proposed a ban on electric cars from the same year. A proposal that was withdrawn under pressure from the Biden administration, which is instead aiming for more sustainable mobility.
Alessandro Michaehelles, Head of Value Approach in Asset Management division at Banca Generali
Automakers enjoy up to 700 basis points lower gross margins on electric vehicles than internal combustion cars. Battery costs are the main factor in this margin dilution.
