The EV Market

The Electric-Vehicles Market, with its catchy acronym, has been a hotbed for investor interest, both directly and indirectly. As the policies surrounding emissions controls, via congestion charges, indirect taxes, and fore-planned bans on non-electric vehicles by governments such as that of the UK have evolved with time, the general opinion has been that electric vehicles and the EV market as a whole will become a leading sector undergoing significant growth with endless possibilities. It is not just Tesla, and not just Elon Musk.

Upon the onset of the developments in Ukraine from February 2022, the general market sentiments have largely been one with excessive optimism for the EV market. The basic economic reasoning lies with the anticipated rises in fuel prices, and the subsequent shift in demand into a substitute product, one whose market share and market revenues have been growing at pace. Hybrids popularised by Toyota, through to relatively unknown Chinese brands such as BYD and NIO, are all jumping on the bandwagon and making their best attempts at revolutionising the traditional petrol and diesel vehicles that we have grown to be so accustomed to.

Here-in lies an interesting line of analysis once one starts to try and factor in second-order effects, and offers a way of understanding why the EV market hasn't taken off in the fashion that certain market analysts might have expected over the last year-and-a-half. Foresight could very well have paid off, although as always, predictions and forecasts are never easy when it comes to the things that matter, and hindsight will always be the understanding that comes too late.

For one, as energy prices have risen over time, so too have electricity bills. And what do EV vehicles run on if not just another form of energy, whose prices have risen more or less concomitantly with gas and petroleum. Moreover, to compound on the problem that the EV market has been faced with, we ought to consider the raw materials that go into the production of the kind of batteries which electric cars run on. The core requirement of rare metals such as lithium has come under strain post-Covid-19. The subsequent limits to trade, and the prior over-reliance on China for rare metals, more down to the environmentally damaging consequences of acid leaching rather than the actual intrinsic scarcity of the required metals, has meant that the costs faced by EV firms have come under strain like most other sectors.

One further complication that has beset this industry has been the overwhelming amount of subsidisation which the Chinese government has pumped into its EV-market. As President Xi has tried to promote the development of strategic industries, the EV-market has been one 'hot cake' that has attracted over-subsidisation on all accounts. There has been gross over-production, and stocks of finished and semi-finished autos are lying around with indefinitely impending bulk orders which will never be fulfilled by real demand. Tesla has only lost out when it has attempted to engage the Chinese market with price competition.

Nonetheless, we would expect this to be a sector that will still see significant growth, which will eventually materialise to a new level once current technological constraints for the mass-market are lessened, especially in relation to the current problem posed by a single-charge currently still being incapable of lasting out long-haul journeys.

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