Saahil Desai begins by saying that electric cars have reached tipping point in USA: “…electric cars are already upending America. In 2023, our battery-powered future became so much more real—a boom in sales and new models is finally starting to push us into the post-gas age. Americans are on track to buy a record 1.44 million of them in 2023, according to a forecast by BloombergNEF, about the same number sold from 2016 to 2021 total…
“We’re at a point where EVs aren’t necessarily exclusively for the upper, upper, upper class,” Robby DeGraff, an analyst at the market-research firm AutoPacific, told me. If you wanted an electric car five years ago, you could choose from among various Tesla models, the Chevy Bolt, the Nissan Leaf—and that was really it. Now EVs come in more makes and models than Baskin-Robbins ice-cream flavors. …Nearly 40 new EVs have debuted since the start of 2022, and they are far more advanced than their ancestors.”
Mr Desai believes that this is important not because Tesla will sell more cars but because the rise of EVs will change the nature of driving and what cars do to the world around us: “All of these EVs are genuinely great for the planet, spewing zero carbon from their tailpipes, but that’s only a small part of what makes them different. In the EV age, cars are no longer just cars. They are computers. Stripping out a gas engine, transmission, and 100-plus moving parts turns a vehicle into something more digital than analog—sort of like how typing on an iPhone keyboard is different than on my clackety old Samsung flip phone. “It’s the software that is really the heart of an EV,” DeGraff said—it runs the motors, calculates how many miles are left on a charge, optimizes the brakes, and much more.
Just like with other gadgets that bug you about software updates, all of this firmware can be updated over Wi-Fi while a car charges overnight. Rivian has updated its software to add a “Sand Mode” that can enhance its cars’ driving ability on dusty terrain …but EVs are capable of more significant updates. A gas car is never going to meaningfully get more miles per gallon, but one such update from Tesla in 2020 increased the range on its Model X car from 328 to 351 miles after the company found ways to wring more efficiency out of its internal parts. And because EVs all drive basically the same, tech is a bigger part of the sell. Instead of idly passing the time while an EV recharges, you can now use a car’s infotainment system to Zoom into a meeting, play Grand Theft Auto, and stream Amazon Prime.”
Mr Desai then turns his attention to describing how radically the auto industry’s skillset and supply chain will have to change adapt to the new world: “If cars are gadgets now, then carmakers are also now tech companies. An industry that has spent a century perfecting the internal combustion engine must now manufacture lithium-ion batteries and write the code to govern them. Imagine if a dentist had to pivot from filling cavities to performing open-heart surgery, and that’s roughly what’s going on here. “The transition to EVs is completely changing everything,” Loren McDonald, an EV consultant, told me. “It’s changing the people that automotive companies have to hire and their skills. It’s changing their suppliers, their factories, how they assemble and build them….
Take the batteries. To manufacture battery cells powerful enough for a car is so phenomenally expensive and arduous that Toyota is pumping nearly $14 billion into a single battery plant in North Carolina. To create software-enabled cars, you need software engineers, and car companies cannot get enough of them. (Perhaps no other industry has benefited the most from Silicon Valley’s year of layoffs.) At the very low end, estimates Sam Abuelsamid, a transportation analyst at Guidehouse Insights, upwards of 10,000 “software engineers, interface designers, networking engineers, data center experts and silicon engineers have been hired by automakers and suppliers in recent years.” The tech wars can sometimes verge on farce: One former Apple executive runs Ford’s customer-software team, while another runs GM’s.”
If you are an investor in the auto industry or sell cars or work in the auto industry, we would recommend you read Mr Desai’s piece in full as he goes on to describe how cars will increasingly be sold directly to consumers (cutting out dealers) and how the end of “after sales servicing” will further disrupt the business model of dealers.
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
