It is clear that governments around the world are seriously committed to the electrification of motor vehicles. What is less certain, is the extent of consumer acceptance of electric vehicles (EVs).
Currently, EVs account for a small single digit percentage of world-wide light vehicle sales. While most EV manufacturers are able to sell all they can build, no one really knows when supply will exceed demand. Once supply/demand equilibrium is reached, competition is likely to become fierce, perhaps unusually fierce, because of regulatory mandates that require most manufacturers to reach specified volumes relatively quickly, whether or not consumers are on board.
Aggressive competition may solve one of the potential deterrents to EV demand, specifically, price. Presently, the initial purchase price of EVs is materially higher than for comparable internal combustion engine (ICE) powered vehicles, although the life time cost is generally lower for EVs.
In that context, Ford Motor Company’s apparent strategy for its EV (Lightning) variant of its F-150 series of pickups, makes sense. Ford appears to be planning to emphasize fleet sales for the Lightning, as fleet managers are very focused on lifetime costs. An emphasis on fleet sales can also help with the problem of range, since most fleet units are parked at company facilities over-night, where they can be fully recharged, making range much less of an issue. Fleet sales may become an important part of reaching sales mandates, particularly for manufacturers able to effectively service this market.
Investors should note that, while automobiles have been around for more than 100 years, large scale electrification is relatively new. Considerable consolidation is likely and picking survivors is going to be difficult.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA®