For some time now, the ranking of the world’s leading automobile manufacturers has been changing. Or to be more specific, Volkswagen, Toyota and the Renault-Nissan-Mitsubishi Alliance are still on top if we count the number of vehicles sold. If instead we’re looking at market capitalization, Tesla takes the lead. Today the company is worth around 675 billion euro, more than double the value of the three sales leaders combined. In fifth place, with a capitalization of 75 billion euro, we have another electric vehicle (EV) producer: NIO, a Chinese company combined worth more than Daimler, General Motors (GM) and BMW. And NIO isn’t alone; several other EV companies have seen stratospheric capitalizations in recent months, the likes of Rivian (electric pickups, valued at 25 billion euro with a private placement), Nikola (electric trucks, 8 billion euro in the stock market) and Arrival (electric buses, 14 billion euro).
By now there’s no longer any doubt: the future of mobility is electric. Sustainability demands it, and the efficiency of battery-powered vehicles is advancing more rapidly than expected. Cases in point: just a few days ago GM announced that by 2035 it would only sell electric vehicles; Volkswagen will offer an electric version of all its models by 2030; Daimler will have at least one hybrid or electric version for each model before year’s end 2022. And all this with the support of governments that are pushing these corporate investments. It’s no coincidence that GM’s announcement came just a few days after Joe Biden took office, promising a new federal incentive program for EVs. Now the US is joining Europe, which has adopted strict rules on carbon emissions from cars, forcing manufacturers to abandon combustion-engine vehicles. What’s more, the Chinese government has decided that local sales of electric vehicles must reach 20% of the market (around 5 million units) as soon as 2025.
The capitalizations of Tesla and its competitors are jaw dropping, despite everything that the automotive sector has always had to contend with: low margins, high fixed costs and excess production capacity. This being the case, many investors fear they’ll find themselves facing a new speculative bubble, the “Electric Vehicle Bubble,” a smaller-scale sequel to the Internet Bubble. That episode began in 1995, when the share price of any company that had even a weak link with the internet started steadily skyrocketing, reaching an unbelievable apex in March 2000, when the bubble burst and disaster ensued on the financial markets. So experience teaches us never to predict what will happen on the stock market. But what we can do is try to grasp the economic implications of the transition to sustainable mobility. Battery-powered vehicles are simpler to develop and produce compared to traditional ones. So, we can expect droves of new producers to enter the market. In fact, in China alone there are more than 400 startups that want to produce electric vehicles. One aspect to consider in EV development is that it takes longer to recharge batteries than it does to refuel a traditional car. A possible solution is powering up in your garage at home overnight. But many people park their cars on the street. And recharging every car in an entire country every night would be a problem in a sustainable future where electricity comes from solar power, which obviously isn’t available at night.
In any case, the characteristics of EVs offer great opportunities for innovation too. Let’s take NIO, for example, the Chinese producer we mentioned before that has risen to fifth place in market capitalization. This startup was founded in 2014, launched production in 2018, and sold 43,000 cars in 2020 alone, 0.5% of the sales of a manufacturer like Daimler or GM. The Chinese name of the company, Weilai, means “a blue sky is coming,” an allusion to a world without pollution. The design of NIO cars is patently inspired by Tesla. The strategic positioning in the premium segment is similar too. But what differentiates NIO is the fact that it offers customers a “battery swap” service in automated roadside stations, a technology that was tested but later discarded by Tesla a few years back. It takes just three minutes to swap out a dead battery for a fresh one in a NIO vehicle. So basically NIO customers buy cars but not the batteries, saving 25% on the final price; instead they sign up for a battery replacement service for around 200 euro a month.
Will NIO’s innovation be successful? The stock market is betting on it. That said, Better Place, a startup that attempted to introduce a similar solution in Israel years ago, quickly failed. But we can’t help noticing that with its subscription formula, NIO is moving closer to other successful companies – from Spotify to Netflix – that offer their customers innovative ways to use services and content.
Subscriptions represent just one of the many new business models that could emerge with EVs, creating sources of value. In reality, electric vehicles will have new production chains, new on-board services, and new sales methods. In the coming years, EVs will be part of a mobility system that is radically different from today’s. Italy is one of the big automobile markets, but for the time being our country does not play a major role in the EV value chain; this means investments are needed. The FCA and Peugeot-Citroën merger may be a turning point, potentially making it possible to move the electric platforms developed by the French partner to FCA production plants in Italy.
Mobility is only one example of the transformations triggered by sustainability. Food companies are testing out vegan alternatives to meat. Steelworks are attempting to replace coal with hydrogen in their blast furnaces. Fashion brands are trying to convince their suppliers to ensure worker safety and respect worker rights. These changes always generate value, even though we can’t foresee how or when.
Even in the age of the dot-com bubble, investors were right to bet that the internet would revolutionize the economy. If anything, what they got wrong was which stocks to invest in. Many internet companies from back then have disappeared without a trace, but others have grown to become giants in their sectors. Take Amazon: today capitalization is forty times higher than the mind-boggling peak it reached at the height of the bubble.