Words like ESG, circular economy, sustainability, global warming, carbon footprint, carbon offset, and net zero have become entrenched in everyday language, and, like it or not, when it comes to transportation, the electric vehicle (EV) revolution is in full swing. We are being encouraged to ditch our combustion engines in favour of cleaner energy, and with good reason: not only is electric kinder to the planet, but oil is a limited commodity and won’t last forever.
However, despite media reporting of a slowdown in sales, EV Volumes’ recent report showed that sales of electric vehicles, both battery electric vehicles (BEV) and plug-in hybrids (PHEV), increased by 35 percent in 2023. Additionally, Statista reports that in 2024, the global revenue in the electric vehicles market is projected to reach $623.3bn.
All of which is good news for investors looking to capitalise on this emerging trend. By looking further down the supply chain beyond car manufacturers, there are many areas in the sector that present attractive investment opportunities, such as battery and other technologies, supporting services and infrastructure, and with enough research investors can position themselves to reap the benefits.
The case for EVs
Excluding water vapour, which varies between 0–4 percent, Earth’s atmosphere comprises approximately 78 percent nitrogen, 21 percent oxygen and 0.93 percent argon, with the remainder made up of trace gases, including the so-called greenhouse gases; carbon dioxide, methane, nitrous oxide, and ozone. While greenhouse gases account for only 0.04 percent, or 400 parts per millions (ppm), of gases in the atmosphere, they, along with water vapour, absorb the heat energy that the Earth gives off, trapping some of it in the atmosphere and emitting the rest back to Earth and space. And this causes a vicious cycle. As the heat energy in Earth’s atmosphere increases, humidity increases, which heats Earth further.
Transportation accounts for approximately 15 percent of all global energy-related energy emissions, and EVs have emerged as one solution to help mitigate the impact of combustion engine emissions and reduce the effects of climate change.
Growth drivers of the EV market
20 years ago, car buyers were encouraged to buy diesel vehicles as they were better for the planet. Obviously we know now that wasn’t the case and with more information at our fingertips, car buyers are more aware of the environmental benefits of EVs, but market growth is determined by several factors that affect EV adoption.
EV manufacturers promise both risk and reward in equal measure
Buying or leasing a car is a huge investment, so price remains a major driver of the market. And while prices are slowly coming down, the cost of an EV is still higher than that of a petrol equivalent. Thankfully though, with more manufacturers hopping on the proverbial electric bandwagon, there is now considerably more choice for consumers.
The next growth driver is battery life and range, and though it’s fair to say that while both battery life and range have significantly improved over the last few years, there is still a way to go before consumers feel confident about their EV comfortably covering a long drive without the need to stop and charge several times. A continuously expanding charging infrastructure along with the potential improvements to use faster, universal charging points will help drive market growth and assuage concerns when it comes to range and journey time.
The final growth driver is the availability of government incentives and subsidies that help consumers reduce the cost of swapping from petrol to electric. Alongside policies that improve and expand the charging infrastructure, this will help to make EVs a more attractive option for consumers.
Investment opportunities
If you are an investor looking to diversify your portfolio and take advantage of the headway being made in the EV market, where should you look? Starting at the top of the supply chain, EV manufacturers are the obvious place for a potential investor to begin sizing up the shape of the market and analysing the relevant data.
Many of the ‘old guard’ car manufacturers such as Ford, Volkswagen and General Motors have added plug-in hybrids to existing car marques while some have even designed futuristic-looking pure electric ranges. Then, of course, there are the new kids on the block such as Tesla and Rivian, to name two, that would require much deeper analysis as they sit firmly on the riskier side of a balanced portfolio. So, whether you are after the stability of the tried and tested or a bit more risk with exciting innovation, EV manufacturers promise both risk and reward in equal measure.
With recent advancements in lithium-ion chemistry, energy density, battery life and safety, and the development of solid-state batteries, and more, these links in the supply chain, which includes leading manufacturers, materials suppliers and R&D firms, plays a vital role in shaping the future of EVs. The companies leading these technological innovations are the ones potential investors should analyse because as they position themselves as leaders in the race to power the future, they could yield significant returns.
Leading battery manufacturers include Panasonic, Samsung, LG Energy Solutions, and Tesla, and with the demand for EVs set to increase, it stands to reason that they should grow alongside the industry. Battery manufacturers provide investors with the opportunity to add to their ESG portfolio and potentially capitalise on the battery market. But what about the raw materials needed for the batteries? For an average EV lithium-ion battery, 60–75 percent of the weight comes from the energy cells, which is roughly 8kg lithium, 35kg nickel, 14kg cobalt and 20kg manganese, with the remaining 25–40 percent taken up by the battery’s metal casing and cables, along with the thermal and battery management systems.
As the demand for batteries increases so does the demand for the raw materials, and while it’s a very risky part of the market, a canny investor might want to take a look at the leading miners of these minerals.
As technology becomes ever more sophisticated, the EV battery of tomorrow will be completely different to that of today, thanks to the efforts of research and development, meaning that R&D firms should definitely make the cut when it comes to looking at potential investments, especially as many governments are providing incentives to support the development of EV technology. For example, the UK government recently announced a £71.5m combined government and industry investment for automotive R&D projects.
For investment purposes, it is also worth considering what happens to a battery once it has come to the end of its life. In the more sustainable conscious world we live in these days, batteries are recycled to help create a circular energy economy. And with about four times lower emissions than virgin materials, recycled battery materials help reduce the carbon footprint further.
When it comes to battery recycling, there are already some big hitters in the sector, such as Ecobat and Li-Cycle Holdings, which is projected to grow from $9bn in 2023 to $56.3bn by 2031. According to McKinsey, driven by several factors including technological progress, supply-chain stability consideration, decarbonisation and ethical supply-chain targets, as well as regulatory incentives and pressure, the battery recycling space is set for significant growth.
Currently, most EVs are charged at home or work, but for higher EV adoption there needs to be a better network of faster chargers to provide the same level of accessibility and convenience that refuelling petrol-powered cars has. In 2022, there were over 450,000 public EV chargers in Europe. This number is set to grow to 1.3 million by 2025 and 2.9 million by 2030. Thankfully there are already some global superstars in this sector including Blink Charging, EVgo and ChargePoint.
Risks and challenges
Investing in the EV market can look attractive, but like any investment, it comes with its fair share of risks and challenges, with the biggest risk being market volatility. As it’s a new(ish) market, stock prices can fluctuate wildly, making it difficult to accurately predict future trends to help make informed decisions. Additionally, not all companies may survive, especially as research and development of all this new technology requires a significant investment which can affect a company’s overall financial health.
Car buyers are more aware of the environmental benefits of EVs
Additionally, government policies and regulations play a vital role in the shaping and growth of the EV market, and any change to regulations or the availability of incentives and grants can impact a company’s potential profitability.
Even if you are a confirmed petrolhead who loves the sound of a V8 engine, there is no denying that, from an investment standpoint, the outlook for growth in the EV market appears promising as governments across the world implement policies to incentivise EV adoption, and advancements in battery technology and charging infrastructure make EVs more accessible and convenient.
However, despite plenty of investment opportunities, market volatility means the EV sector can be a riskier avenue than most, requiring thorough research and analysis to manage the associated risks.
