This is an executive summary of ARK Invest’s electric vehicles white paper: The Future of Autos and Trucks Is Electric
ARK Expects Global EV Sales To Exceed Current Forecasts, Substantially
ARK expects global sales of Electric Vehicles (EVs) to reach 17 million units by 2022, while agencies like the EIA are forecasting only two to four million units. Given the declining cost curve of lithium-ion battery cells, juxtaposed against the rising cost of internal combustion engines (ICE), EV sales growth is accelerating rapidly. Growth could be curbed by battery supply constraints in the next two to three years, but capital spending in this space should accelerate as battery supplies rise to meet the demand for EVs.
The Internal Combustion Engine Should Give Way to Battery Technology
ARK expects that the superior economics associated with electric vehicles will cause a wholesale shift from the internal combustion engine to battery technology. Two form factors dominate battery technology today: cylindrical cells and pouch cells. Evolving with the consumer electronics industry during the past 30 to 40 years, cylindrical cells are more mature and cheaper than pouch cells. That said, pouch cells are at an earlier stage of development and, while more expensive than cylindrical batteries today, their costs are declining more rapidly. ARK expects pouch cells to reach price parity with cylindrical cells by the end of 2019, though the two cell forms will not be like-for-like at that time, as cylindrical cells are likely to maintain their specific energy advantage through 2020. ARK’s analysis demonstrates that overall system efficiency, which is battery form-factor agnostic, will have an out-sized impact on EV range and performance.
Traditional Long-Haul Diesel Trucks Should Give Way to Electric Semi Trucks
While automakers are waking up to the realization that electric drivetrains are the future of passenger vehicles, many manufacturers remain skeptical that heavy-duty hauling vehicles will succumb to electrification. They continue to assert that batteries are too expensive, too slow to charge, and too heavy to be incorporated into long-haul fleets. According to ARK’s research, conventional wisdom is miplaced: while EV Semis will incur higher upfront costs, total lifetime costs will be significantly lower than those for traditional semi trucks. In fact, during a 15 year life span, the total cost of ownership of an EV Semi should be roughly $500,000 lower than that of traditional diesel models.
ARK Expects That Lithium Will Not Fall Short of the Demand From Electric Vehicles
Just as the outsized demand for and rising price of copper spurred mining companies to explore and discover more of it, ARK expects lithium reserves to grow even as lithium production rises to meet the demand for EVs. Given the exponential ramp in demand for EVs that ARK is anticipating, lithium prices should continue to rise to the marginal cost of extracting it, giving mining companies with access to large reserves an opportunity to benefit disproportionately.
ARK Expects Peak Oil Will Be More A Function Of Demand Than Of Supply
While BP’s most recent Energy Outlook forecasts that global oil demand will rise from roughly 94 million barrels per day (Mb/d) today to 110 Mb/d by 2035, ARK’s research suggests that it will peak below 100 Mb/d before the end of this decade and decline to 90 Mb/d by 2035. Even if autonomous technology does not commercialize as rapidly as ARK anticipates, EV adoption alone should cause peak oil demand by 2025. Though personal cars account for less than 30% of total oil demand, diesel trucks help to explain why transportation makes up 56% of total oil demand. EV Semi trucks could be the real spoiler in the outlook for oil prices.
ARK Expects That Batteries Will Outlive Their Vehicles
Battery degradation is one of the biggest concerns that potential buyers express as they evaluate an EV purchase. According to ARK’s research, not only will EV batteries retain substantial value after the end of their in-vehicle life, but electric utilities probably will bid to buy them as they curb capital spending associated with peak power capacity needs. By our calculations, the value of a ten year old battery from a Tesla Model S could command as much as $13,000, more than that for an entire internal combustion engine vehicle sold originally at a similar price-point.
The Auto Sector Is Ripe For Significant Consolidation
After Ford introduced the moving assembly line, the horse-drawn carriage industry consolidated by more than 96% and the automotive market by roughly 80%. ARK’s research suggests that the introduction of autonomous technology and manufacturing efficiencies will cause similar levels of consolidation: autonomous vehicle networks should benefit from the network effects now enjoyed by companies like Facebook, Google, and Amazon, all of which have capitalized on “winner take most” data aggregation strategies. Data-driven industries tend to be much more concentrated than hardware-centric industries.
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