Industry Analysis of the Electric Vehicle Industry

1 Stage One - Industry and Top Companies Selection Introduction The ability to apply concepts studied in the classroom to analyze actual businesses is an important feat in financial studies. Knowledge gained in business studies class is of little importance if the learner cannot use it to analyze the financial situations of industries and businesses and make appropriate decisions and conclusions. This project will involve applying the concepts studied in the course of the semester to analyze the current situation and trends in the cloud Electric Vehicles (EV) industry. It will also discuss the performance of the three market leaders in the industry. According to Peluso (2022), the electric vehicles industry is the fastest-growing segment in the automotive industry, with sales surging to 5.6% of total auto sales in the second quarter of 2022 from just 2.7% in the second quarter of 2021.

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The Industry By searching “the biggest threat to humanity” on Google, all the results on the first page either solely consider climate change as the biggest threat to humanity or list it among the biggest threats. The United Nations also consider climate change the biggest threat to humanity.1.

Climate change is indeed a big threat to humanity; some rivers are at risk of drying up, cities are at risk of being submerged, and extreme weather conditions and desertification. According to United Nations (n.d), fossil fuels are the leading contributor to climate change, being responsible for 75% of all greenhouse gas emissions and 90% of carbon dioxide emissions. Using EVs is one way through which humanity is attempting to reduce fossil fuel consumption. Even though the interest in electric vehicles developed due to the need to reduce dependence on petroleum due to fuel shortage.2, their current primary selling point is the fact that their usage reduces carbon dioxide emissions.

EVs have two sets of competitors. For part of the market that is using vehicles due to their concern for the environment, competition comes from other environmentally friendly means of transport like scooters, bikes, and public transportation. For those who buy them for other factors like cost, convenience, and other factors, competition can come from petroleum fuel vehicles.

One of the biggest risks in the EV market is politics and interference from petroleum industries. Some politicians and business moguls are actively and openly trying to make people 1 In an article published on the UN website on February 23, 2021, the Body officially declared climate change the greatest threat humanity has ever faced.

2 The use of Electric Vehicles became practical before the turn of the 20th century because many oil fields had not been discovered, and there was the need to reduce dependence on petroleum. However, after the discovery of many more oil fields, interest in EVs reduced since gas cars are more convenient. Gas cars remained mainstream until the need to reduce emissions revived the interest in EVs.

3 believe that EVs do not solve environmental problems or that climate change is not such a threat3. Some arguments they put forward include claims that the materials used to make EV batteries are scarce and non-renewable and making one EV battery cause of emission of carbon dioxide that a gas car can emit for the whole year.

Global and Domestic Economic Trends The EV industry is growing in almost every country. Norway and China have the highest proportion and numbers of electric vehicles, respectively, with 79.3% of new cars and 7.84 million cars in use in the two markets, respectively being EVs. Even though about 6% of cars registered in the US in 2022 were electric, the total number of EVs in America is still about 1%.

Experts, however, forecast that EVs could make up 10% of vehicles in America by 2025, 30% by 2030, and 50% by 2050 (Muratori et al., 2021).

This an example of a political battle against EVs: https://www.bloomberg.com/news/articles/2022-11-17/electric-car-incentives-may-be-at-risk-from-republicans-incongress?leadSource=uverify%20wall 3

4

Passenger-plug in market share of new car sales in selected countries and global average.

100 90 80 70 60 50 40 30 20 10 0

2017

2018 Norway Finland

2019

2020

2021

Iceland China

Sweden USA

Denmark World

2022

Figure 1: Source: Statista.com From the graph, it is clear that the EV market is steadily growing. Factors influencing EV adoption include government policy, politics, and environmental concerns. For instance, Norway is determined to achieve zero net emissions by 2025 and the government has implemented several strategies to encourage people to adopt EVs (Bernard et al., 2021). Some of the strategies include reduced taxes on new purchases.

It is also clear from the graph that the market share of EVs in the US is very small compared to other OECD countries. However, the share is still above the global average. The market share for EVs in Africa, South America, and the Middle East is the tiniest. In some SubSaharan countries, there is no available data about EVs which means that there is a likelihood that these countries have no EVs. According to Statista, the only confirmed electric vehicles if Sub-Saharan Africa by 2021 were 350 EVs in Kenya out of 3.95 million registered vehicles in

5 the country and about 1000 EVs in South Africa out of 13, 570,330. South America has limited data, suggesting that the market share is still too small to attract interest.

Number of EVs in Kenya and South Africa 1200 1000 800 600 400 200 0

Kenya

South Africa Total Nuber of Evs

Column2

Figure 2: Source: Statista.com

Figure 3: South America EV Market Share By Country, 2022-2028.

Column1

6 Industry Conditions and the Industry’s Opportunity to Grow By the end of 2022, about 10% of all vehicle sales were EVs. Global revenue from EV sales hit USD 383.7 billion from USD 349.9 billion in 2021 (Fletch & Richter, 2022). According to Statista (n.d), 7.13 million EVs were sold in 2022, 1.91 million being battery electric vehicles and 5.21 million being plugin hybrid electric vehicles. The publication also predicted that by the end of 2023, 8.6 million EVs would have been sold, 2.14 million, and 6.47 million plugin hybrid electric vehicles.

Mass production of electric vehicles started relatively recently, in 1996, but it took over two decades for the industry to gain substantive momentum when about 760 thousand vehicles were sold (Khurana et al., 2020). Endorsement by governments and increasing environmental consciousness are some of the leading factors contributing to the tremendous growth of the EV market. The Global EV market is projected to grow at a CAGR of 21.7% from 2022 to 2030.

Several countries have set targets for vehicle emissions by 2030 by encouraging the shift to EVs. Several governments are thus implementing strategies to help in achieving this. For instance, the US government allocated USD 5 billion to build EV infrastructure, especially charging stations (Asadi et al., 2021). Some governments offer incentives such as charging zero or little registration fees, import and purchase taxes, and road taxes. Governments of Germany and Norway are even promoting sales of EVs. The governments of China and Japan are also planning to end the sale of internal combustion engines by 2030. Such actions and plans by the government offer a great opportunity for EVs. As long as emission remains an issue, the EV market will continue to grow.

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Projected EV Revenue in billion dollars.

1000 900 800 700 600 500 400 300 200 100 0

2023

2024 Battery Electric Vehicle

2025 2026 Plug-in Hybrid Electric Vehicle

2027 Total

Figure 4: Source: Statista The EV market has a bright future. As people continue to gain environmental consciousness, they tend to adopt environmentally friendly lifestyles. Another factor that will lead to growth in the industry's market share is the generation of electricity from renewable sources. Some people do not use electric vehicles because much of the electricity used to charge them also comes from fossil fuels. More people will likely adopt EVs if governments can generate energy from renewable sources.

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Projected EV Unit Sales in Millions 18 16 14 12 10 8 6 4 2 0

2023

2024 Battery vehicles

2025 Plugin Hybrid Electric Vehicle

2026

2027

Total

Figure 5: Source: Statista One of the greatest potentials in the EV industry is innovation. A significant proportion of the automotive market prefers fuel-based cars because charging an EV battery takes relatively long and may delay a journey when recharging has to be done during a journey. Having longerrange batteries that can charge faster is and have a longer range can make EVs very popular since they are some of the strongest arguments against EVs. Top three (3) companies Tesla is the market leader in the American EV market. Even though it does not fit the literal definition of a monopoly, it is a monopolistic competitor in a monopolistically competitive EV market. About 64% of EVs in the US are Tesla. However, in the global market, it is not such a dominant force and has a share of only 18.2% (Liu et al., 2022). This figure was a decrease from 21% in 2021. The 2021 share also decreased from 2020's 23%. Tesla is losing Ground, both

9 in the US and global market. In the US, sales reduced from 79% to 72% to 65% in the years 2019, 2021, and 2022.

Model

Sales

Tesla

1,314,330

BYD

913,052

SAIC

671,725

Volkswagen group.

571,067

Geely-Volvo.

385,936

Table 1: EV sales for top five sellers. Source: Statista

Sales

Tesla

BYD

Figure 6: Global EV market share.

SAIC

Volkswagen Group

Geely-Volvo

10

Figure 7: Registration share in EV market registration in the US. From S & P Global Mobility.

The top three companies for this project are selected based on the share of sales in the global market. This is one of the best criteria because other criteria like profitability, revenue, market capitalization, and ROE all depend on sales. Sales is one of the greatest determinants of business success. This criterion places Tesla, BYD, and SAIC as the market leaders. Tesla dominates the American market, while BYD and SAIC dominate the Chinese market. While Tesla has never produced a gas car at any point, BYD started with internal combustion engine cars but slowly shifted to EVs until March 2022, when it discontinued its production of ECEs. SAIC on the other hand majorly produces gas cars but has a substantive share in the EV market.

It is a large company with several brands, some of which are exclusive to the company and some of which are produced through ventures. The brands that are exclusively produced by SAIC include Roewe, Maxus, MG, and Yuejin (Deng & Wang, 2019). SAIC’s brands produced

11 through joint venture companies are sold under marques, including Baojun, Buick, Cadillac, Chevrolet, Škoda, Audi, Volkswagen, Iveco, and Wuling.

Tesla Tesla is an American Multinational clean energy and automotive company. The company manufactures electric vehicles (cars and trucks), grid-scale energy storage, batteries, and solar panels. Tesla is the most valuable automotive company, with a brand value of USD 75.9 billion (Carlier, 2022), and is one of the most valuable companies in the world. According to its CEO, Elon Musk, the company's primary mission is to help expedite the shift to sustainable energy and transport through electric vehicles and solar power. Tesla's Model 3 is the company's bestselling model and also the bestselling EV model in the world. It is also the first EV model to surpass one million units in sales when 1.31 million model Y cars were sold in 2022. Tesla's market capitalization reached USD 1 trillion, which made it the 6th American company to do so in the country's history. Tesla built its first factory outside the US in 2019 in Shanghai, China. Elon Musk was planning to double the firm's capacity. However, he was barred by the Chinese government due to fears that SpaceX, another company headed by Musk, through its subdivision, Starlink, could assist militaries of China's enemies with communication services. Tesla also has plans to build another giga factory in Monterrey, Mexico. Tesla’s 2022 revenue was USD 80 billion.

SAIC SAIC (formerly Shanghai Automotive Industry Corporation) is a state-owned automotive manufacturer with headquarters in Anting, Shanghai, China. It is the largest of the four Chinese state-owned automotive companies. The other three are; FAW Group, Changan Automobile, and Dongfeng Motor Corporation. SAIC sold 5.32 million cars in 2022, which was the highest of any

12 Chinese manufacturer (Deng & Wang, 2019). It ranks 60th among the fortune global 100. The company’s EVs are sold under brand names like Wuling, Maxus, Baojun, Feifin, and Roewe.

The 2021 revenue was USD 115,602,851,918.40.

BYD BYD (Build Your Dream) is also a Chinese MNC, though not state-owned. It is headquartered in Shenzhen, Guangdong, China. The company's two main subsidiaries are BYD auto and BYD electronics. The company manufactures trucks, electric bicycles, forklifts, solar panels, buses, automobiles, and rechargeable batteries. As of 2023, 7.7% of the company is owned by Berkshire Hathaway (Clausen & Olteanu, 2021). The company’s total assets are worth USD 42.95 billion (2021). In the same year, the company’s revenue was USD 30.68 billion, and its net income of USD 440 million.

Reflection While doing the assignment, I learned that even though the use of EVs offers an incredible solution to the emission problem, it also creates its own problem. Firstly, the materials used to make the batteries, like Lithium ion, Manganese Nickel Cobalt, and Nickel Metal hydride, are non-renewable and scarce, and their extraction also degrades the environment.

However, environmentalists argue that even though this is also a serious concern, climate change is a greater problem. But still, EVs are not the ultimate solution to carbon dioxide emissions.

About 2400kg to 16000kg of carbon dioxide is emitted during the manufacturing of EV batteries.

This is that EVs just reduce emission but does not eliminate it. I also learned that whether a company diversifies or specializes, all that matters is effective management and product quality.

Tesla prefers specializing, while BYD and SAIC prefer diversification, but they are all doing well. Lastly, I learned that all companies should positively respond to market trends to remain

13 relevant and profitable. SAIC and BYD started as ICE car manufacturers, but as the need for non-emitting arose, they started manufacturing EVs. The third lesson is relevant in the workplace since I now know how important it is to adapt to environmental needs. Just the way companies need to address changing customer needs in the product market, employees also need to adapt to changes in the job market. One can adapt through actions like learning new skills.

14 Bibliography Asadi, S., Nilashi, M., Samad, S., Abdullah, R., Mahmoud, M., Alkinani, M. H., & Yadegaridehkordi, E. (2021). Factors impacting consumers’ intention toward adoption of electric vehicles in Malaysia. Journal of Cleaner Production, 282, 124474. DOI: https://doi.org/10.1016/j.jclepro.2020.124474 Bernard, M. R., Hall, D., & Lutsey, N. (2021). Update on electric vehicle uptake in European cities. International Council on Clean Transportation: Washington, DC, USA. Retrieved from: https://www.researchgate.net/profile/Nicholas-Lutsey/publication/357279271_Update_on _electric_vehicle_uptake_in_European_cities/links/61c47702abcb1b520adb0adf/Updateon-electric-vehicle-uptake-in-European-cities.pdf Clausen, J., & Olteanu, Y. (2021). New Players in the Automotive Industry: Waymo, Build Your Dreams, and Sono Motors. Tech. Rep. Carlier, M. (2022, June 16). Most valuable car brands worldwide by Brand Value 2022. Statista.

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16 Zinkula, J. (n.d.). Electric vehicles accounted for 10% of global auto sales last year - this could quadruple by 2030. Business Insider. Retrieved March 18, 2023, from https://africa.businessinsider.com/news/electric-vehicles-accounted-for-10-of-globalauto-sales-last-year-this-could/q2410sc