How much does it cost to truly achieve global electrification?

Wall Street and Silicon Valley invested billions of dollars in betting on the future development of the EV industry in 2020. With the rise of Tesla, the electrification transformation of the entire automotive industry is accelerating. The investment field that once consisted of Tesla and a few fuel cell companies has now rapidly developed into a sub-industry integrating industry, technology and transportation.

However, the transition to electrification is extremely costly. The latest research shows that to completely phase out internal combustion engine vehicles and achieve a zero-carbon emissions, a pure electric world requires an investment of at least more than $2.5 trillion. At present, insufficient investment is becoming a stumbling block to the development of the industry.

Three pillars to promote EV development

Breakthroughs in battery technology, improvements in charging infrastructure, and environmentally friendly policies or incentives are becoming key forces driving the development of the EV industry.

As we all know, battery costs account for a large proportion of the cost of electric vehicles, but with the advancement of technology, leading companies such as Tesla are approaching the cost mark of $100/kWh. Batteries with lower costs, longer battery life and faster charging speeds will undoubtedly escort the further popularization of electric vehicles. At the same time, improvements in charging infrastructure design have also alleviated consumers' mileage anxiety to a certain extent. In addition, driven by mandatory measures from governments of various countries, the future dispute between electric vehicles and internal combustion engines no longer exists, and global automakers have long realized that "the transition to electric vehicles has become an irreversible trend."

Tesla undoubtedly dominates this field, but GM, Ford and other traditional automakers are not far behind, and have increased their investment in electric vehicles and self-driving cars. GM even announced that it would phase out internal combustion engine models in less than 15 years. After finally achieving sustained profitability, Tesla joined the S&P 500 index in 2020. EV startups such as Weilai, Nikola and Fisker have attracted great attention from investors, and reverse mergers and backdoor listings have almost become a common phenomenon in this field.

The funding gap is huge, and listing through SPAC is just the beginning

According to data from global market research firm CB Insights and Dow Jones Market Data, governments and companies invested a total of at least $28 billion in electric vehicles in 2020. However, analysts from Bank of America predict that in order to achieve electrification on a global scale, automakers, investors and governments around the world will need to invest at least $2.5 trillion. This is an astronomical figure, and insufficient funds are becoming a huge obstacle to the global EV transformation. Therefore, the transition from internal combustion engines to electric vehicles will not become a reality in the short term, and this road to industry transformation is difficult and long.

Electric vehicles currently account for about 2% of global car sales, and there are great differences in the industry's expectations for their future. Some institutions say that global EV sales will account for 10% to 20% of total sales by 2030, but the most optimistic forecast is that this proportion will be as high as two-thirds. According to UBS analysts, by 2030, the revenue generated by global automakers in the field of electric vehicles will surge from the current $182 billion to $1.16 trillion. In contrast, the revenue brought by internal combustion engines will be reduced from $1.77 trillion to $1.07 trillion. In addition, by 2030, the revenue brought by the software business will account for a larger share, reaching nearly $2 trillion.

The huge funding gap will push EV startups to go public through reverse mergers to raise funds. A recent report by Garrett Nelson, an analyst at the Center for Financial Research and Analysis (CFRA), shows that blank check companies played a more important role in U.S. investment last year, when the number of IPOs through SPACs exceeded the total of previous years. The analyst also pointed out that transaction activity in 2021 is expected to "far exceed" last year, and some of the largest SPAC transactions may once again appear in the "emerging electric vehicle and autonomous vehicle sectors." In fact, according to Dealogic data, 90 SPACs applied for listing in January alone, most of which targeted the sustainable development and EV industries.

Electric vehicles may be the real disruptive force in the automotive industry

Investors are also interested in electric car makers, as well as lidar, batteries, sensors and other key components for self-driving cars, although fully autonomous driving has proven to be a trickier and more expensive field, with many regulatory and technical hurdles.

Despite the lofty goals, the majority of cars on the road today are still equipped with advanced driver assistance systems that are not much different than in previous years. It is unlikely that self-driving cars will become a reality and a disruptive force in changing people's lives and the economy in the near future. For now, automakers are still focusing on partially automated driving and advanced driver assistance system products that can be commercialized in the short term, and electric vehicles still have the lead in terms of consumer interest and regulatory push.

Phoenix Technology