Will Your Next Delivery Be Electrified?
Government agencies and environmental activists have spent decades trying in vain to alleviate the negative impact on the environment resulting from the use of fossil fuel-powered vehicles, including the challenges of global warming and pollution. Things have turned for the better in the last few years with the increasing adoption of electric passenger vehicles. EVs are slowly but surely penetrating the commercial vehicle sector as well, and there are many reasons to suggest that commercial EVs will replace many gasoline-powered delivery trucks in the next few years.
A brief history of the evolution of electric vehicles
Electric vehicles have been around for a very long time although this sector gained the attention of investors only in the last decade. American innovator William Morrison designed the very first electric vehicle that hit the U.S. roads in 1896. By the turn of the 20th century, EVs accounted for nearly a third of all vehicles on American roads. Mass production of gasoline-powered vehicles followed suit, and this led to a substantial decline in the production and use of EVs not only in the United States but on a global scale. In a bid to revive the interest in green vehicles, the U.S. Energy Department invested in building a nationwide EV charging infrastructure in 2009, installing 18,000 residential and public charging points across the nation. Right on cue, General Motors Company (GM) unveiled the Chevy Volt in 2010, making it the first commercially available plug-in hybrid vehicle. Since then, many pure-play EV manufacturers including Tesla have dominated this industry.
The adoption of commercial EVs is bound to reach new heights
So far, the investors have focused on the positive outlook for passenger EVs, but there are multiple reasons to believe commercial EVs will gain traction faster in the coming years.
First, the cost of lithium batteries used in EVs has declined sharply since 2010, and automakers have been keen on passing these cost savings to consumers in a bid to attract new customers. Battery manufacturers have invested billions of dollars in the last decade to improve the technology used to manufacture batteries, and these technological developments have played a massive role in bringing the cost of batteries down. According to the latest findings of Bloomberg New Energy Finance, the decline in battery prices will push the cost of EVs below that of gasoline-powered vehicles by 2025, which could mark the beginning of an astronomical growth phase for EV manufacturers.
Exhibit 1: Volume-weighted average of lithium-ion battery price
Source: Statista
Second, the declining cost of owning electric freight trucks will incentivize last-mile delivery companies to electrify their commercial vehicle fleet in the coming years. According to data from Forbes, the cost of ownership for electric freight trucks could be 50% cheaper in comparison to diesel trucks by 2030, and this suggests it’s only a matter of time until large delivery companies decide to ditch gasoline-powered commercial vehicles in favor of EVs.
Third, regulators across the world are pushing for radical changes to achieve sustainable development goals, and this tilts the odds in favor of the EV industry. Many countries, including the United States, have introduced various incentive schemes and tax subsidies to promote the adoption of EVs for both personal and commercial purposes to reduce the global carbon footprint. Consumer and government spending on electric vehicles, as illustrated below, has grown in leaps and bounds in the last five years, and the continued support from fiscal policymakers is likely to accelerate the spending on EVs in the next decade.
Exhibit 2: Consumer and government spending on EVs
Source: World Economic Forum
As illustrated below, the transportation sector was the highest contributor to U.S. Greenhouse gas emissions in 2019, which confirms that large-scale logistics companies will soon come under pressure from government agencies to embrace electric trucks to avoid penalties and other legislative actions.
Exhibit 3: U.S. Greenhouse gas emissions by sector in 2019
Source: U.S. Environmental Protection Agency
This expected pressure on the transportation sector to reduce Greenhouse gas emissions will also be a catalyst for the growth of the commercial EV industry.
Companies to consider for investment
Investors who stay on top of macroeconomic trends that are gaining traction stand to find lucrative investment opportunities that could deliver multibagger returns in the long run. The commercial EV industry is certainly at an inflection point, which makes investing in this industry suitable for growth investors hunting for the next big thing. Investors seem to be more attentive to passenger EV manufacturers, which makes the commercial EV sector a very attractive bet for opportunistic investors.
Tesla is the first name that comes to the mind of EV investors, but the company might not be the ideal choice to gain exposure to the commercial EV sector as Tesla’s focus is predominantly on passenger vehicles. Investing in a niche player that is laser-focused on extended-range EVs would be the best choice for investors. Ford Motor Company (F), a legacy automaker with a primary focus on gasoline-powered vehicles, recently revamped its business strategy to focus on electric vehicles as well, but Ford has a long way to go to successfully electrify its fleet of vehicles because of the slow start.
Considering these facts, it would make sense to focus on young, specialized commercial EV manufacturers, and Via Motors Inc is one such company to look out for. Via Motors is specialized in commercial EVs, and the company is confident of delivering electric trucks to the market at a cost similar to that of diesel trucks. The company, therefore, seems to be ahead of the industry production curve at the moment. Via Motors is not a publicly listed company, but investors can still get their hands on the equity securities of the company with the help of The Spaventa Group and its pre-IPO investment opportunities.
Beware of fictitious claims
Although the prospects for EV stocks are promising, investors need to be wary of companies that promise to make it big without even formulating a proper action plan. Investors should conduct thorough due diligence before making any investment decisions as many bogus EV companies release eye-catching claims only to attract investor money for personal gains, which is not something new. These instances of “vapourware” often involve a lofty performance specification and flashy artists renderings from unknown companies with no real plans to bring their concept to fruition.
The final mile
The commercial EV industry is entering a major growth phase that could lead to secular growth in revenue for companies that focus on the design and manufacturing of commercial electric vehicles such as delivery trucks. There are many identifiable catalysts for the growth of this industry, and investors who get in on the act early stand to reap handsome rewards in the long run. Contact us today to learn more about investing in Fintech and opportunities in the pre-IPO private market.