2020 was a horrible year for many industries. But one enjoyed record-shattering growth.
Growth so rapid that commentators across the world refer to it as a tipping point.
The industry? Electric passenger vehicles.
Globally, sales of electric vehicles (EVs) increased by 43% in 2020. That helped take them from 2.5% of the global auto market in 2019 to 4.2% last year. That’s a whopping 68% increase in market share.
Those figures are even more remarkable when you consider that all the increase was bunched into the second half of the year.
For the first half of 2020, EV sales declined compared to 2019. But starting in July, EV sales recorded double-digit increases over the same month the previous year. In the last three months, those increases were in the triple digits.
Tellingly, speculative darling Tesla didn’t dominate this trend.
In fact, the company’s European market share crashed from 27% to less than 15% in the third quarter of last year.
That’s despite a 137% increase in EV sales on the continent, taking the total EV share of auto sales to over 10%.
European consumers flocked to cheaper EVs. The top-selling models comfortably outsold the Tesla Model 3. These included the Renault Zoe, the Volkswagen ID.3 and the Hyundai Kona.
This illustrates a point I’ve made for a while now.
Success in the EV sector will go to companies that focus on making practical and affordable vehicles. The fact that they are electric is secondary.
The true tipping point will come when consumers choose EVs because they’re cheaper and better cars than their internal combustion engine (ICE) competitors.
Well, that tipping point has now arrived. And it will create winners and losers in the EV sector that will shock many investors.
Necessity Is the Mother of EV Success
If you’re rich, you can afford to care about things that are nice-to-haves, even in a car — things like self-driving capabilities, fancy software and brand cachet. That’s why rich people buy the EV du jour even if it costs more than a regular ICE car because they value those things.
Everybody else cares mainly about getting from point A to point B cheaply, reliably and safely. They’ll buy the EV that does that better than a regular car.
From an economic perspective, the question is: How much better must an EV be than an ICE vehicle to tip the market?
Evidence from Europe suggests that tipping point is extremely sensitive, and it’s already arrived.
For example, in 2019, electric vehicles in Norway were 0.3% cheaper than their ICE counterparts and had 48% market share. In the U.K., where electric cars were 1.3% more expensive, market share was just 1.6%.
That suggests that once EVs cross the line of price parity, sales go up dramatically. The graph looks like a horizontal hockey stick.
The next question is: Whose EVs dominate that rapid upward slope on the far right-hand side of that chart?
That’s the million-dollar question. And I’ve found the first candidate in the February issue of The Bauman Letter. Find out who it is here.
Are We There yet on This Side of the Pond?
EVs are already cheaper to own than ICE cars, not only in Europe, but in the U.S. as well.
The Massachusetts Institute of Technology recently released a study of the average monthly cost of ownership of EVs, hybrids and ICE passenger cars. It found that when you consider purchase price, fuel costs and maintenance, EVs are already significantly cheaper to own than all but the most basic models of combustion-engine cars.
Comparing two vehicles of a similar quality is equally instructive. A Nissan Leaf with a 62 kilowatt-hour battery pack costs about $350 a month to own and run. A Nissan Maxima costs about $600 a month.
For most consumers, the main obstacles to buying an EV has been purchase price and range anxiety. The lowest-cost version of Tesla’s most popular product, the Model 3, cost $10,000 more than an entry-level ICE vehicle. Even though the long-term cost of ownership might be comparable, many people balk at that higher price.
But EV prices are falling fast, thanks to the falling cost of batteries:
The Winners and Losers
There was another catalyst for the big jump in European EV sales last year: EU regulations that will penalize automakers if the average emissions of their products exceed a certain threshold. That prompted automakers to lower the prices of their EVs to avoid the penalty.
But we’re rapidly approaching the point where the EV industry won’t need government interventions to make EVs more attractive than ICE vehicles. In fact, most industry analysts agree that EVs will cross the price-parity line with conventional cars between 2023 and 2025.
When that happens, and people start buying EVs because they’re available at an acceptable price, they’ll quickly discover how cheap they are to own. That will lead to a rapid increase in sales over the next few years.
And when that happens, the big winners in the EV investment race aren’t going to be companies whose share prices — and products — have reached orbital levels.
They’re going to be the ordinary workaday automakers that can sell decent vehicles at a good price. And they will just happen to be electric.
That’s where to put your money to ride this electric wave. It’s where my Bauman Letter subscribers are putting some money to grab 200% profits within the next two to three years. You can join them here.
Editor, The Bauman Letter
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