Now that climate change has risen to the top of the list of the industry’s fundamentals, it’s possible that established manufacturers may finally make the switch to electric vehicles. You can keep tabs on how far they’ve come in their quest for a cleaner future.
The gap between electric vehicle (EV) producers and traditional automakers has become wider as investors pump money into EV equities in the second half of 2020. Even before the global financial crisis hit in 2008, the world’s biggest automakers were underperforming on the worldwide market. According to Adam Jonas, Head of Global Auto and Shared Mobility Research, the market is persuaded of the long-term secular bear thesis of legacy automakers and their underperformance has been even more obvious in the COVID-19 period. However, there’s a chance the market is overlooking something: Now that climate change is the primary driver of the industry’s fundamentals, legacy automakers are finally turning to electric vehicles, and several of them are making substantial headway towards the more sustainable future. Legacy automakers have a great chance to remake themselves, but they must act swiftly and show substantial change, says Jonas. Legacy automakers aren’t all progressing at the same rate. Automakers with aggressive plans to reduce their total CO2 footprints will be in high demand as this EV revolution takes root. According to Jessica Alsford, Director of Sustainability Research, merely looking at the proportion of their cars that will be electric isn’t enough. The actual environmental effect of manufacturers can only be fully understood by looking at EV as a percentage of their overall fleet on the road.
As a result, the auto and sustainability analysts at Morgan Stanley have collaborated to develop an unique approach for determining how rapidly each manufacturer can decrease its CO2-emissions footprint. This paradigm is used in a recent research, The Global Auto Climate Opportunity Is Your Car Company CLEAN, to identify beneficiaries and laggards in the years ahead. The time is right for firms who are serious about making the conversion to electric vehicles to reinvent themselves, reduce emissions that contribute to climate change, and raise the value of their stock at the same time, all at once.
A High Gear for EV
There has been a dramatic shift in the perception of automobile manufacturers in recent years. It wasn’t until recently that investors realised that the electric vehicle (EV) market was far larger than previously thought. There is now more value in Tesla than there is in the Big Three automakers put together. The move from internal combustion engines (ICE) to electric vehicles (EV) has been written off by investors as an expensive and risky venture. Morgan Stanley sees a once-in-a-lifetime revolution in automobile production, despite the fact that the process will take years and cost hundreds of billions of dollars. As a matter of fact, Morgan Stanley predicts that EV sales will overtake those of gasoline-powered vehicles by 2035. Jonas, whose team has overweight ratings on more than a dozen major manufacturers, believes that in the long term, EV adoption will be more cost-effective than continuing to use internal combustion engines. Improved economics of scale, cost savings from specialized EV platforms, greater regulatory backing and increasing customer demand for electric vehicles are just a few of the reasons to switch to electric vehicles.
As a result, the stock prices of most of the old-school automakers have plummeted. There is presently a sub-industry that is struggling inside the already struggling industrials sector, according to Jonas. Environmental, social, and governance (ESG) investors are increasingly interested in companies that can make the switch to electric vehicles (EVs), and this might lead to a considerable increase in the value of such companies’ stock prices. Instead of that, what are your options? CO2 emissions have the potential to significantly reduce the stock price-to-earnings multiples of corporations that do not address them.
Measuring True Progress
The Morgan Stanley team organized the world’s major automakers into four quadrants based on two fundamental metrics: revenue and market share. In addition to the real pace of change caused by the proportion of EV sales, current CO2 exposure. It is possible to sift out noise from market share and total vehicle growth or reductions by concentrating on accomplished EV penetration as a proportion of cars sold. While fleet sales might decline by around 60 percent in 2040, corporations with the most ambitious strategies could reduce CO2 emissions by more than 80 percent and at a time when demand for new vehicles is rapidly increasing. Assuming our forecast is true, Jonas expects to see years of protracted replacement demand that corresponds to around $25 trillion in replacement demand, and with traditional OEMs providing 90% of EV vehicles in the future.
|Global Autos Data – MSe||2020||2025||2030||2040||2050|
|Total Unit Sales (mm)||73||84||85||100||108|
|Total Car Parc (mm)||1,211||1,244||1,260||1,294||1,235|
|EVs as % of Sales||2.8%||11.6%||26.0%||72.2%||81.5%|
|EV Sales (mm)||2||10||22||72||88|
|EVs as % of Parc||0.6%||2.9%||8.8%||38.1%||67.8%|
|EV Parc (mm)||7||36||111||492||837|
|ICE Miles (bn)||11,838||12,669||13,237||10,794||7,192|
|EV Miles (bn)||57||353||1,342||8,649||21,369|
|Total Miles (bn)||11,895||13,022||14,579||19,443||28,561|
|EV Efficiency (Miles/KwH)||3.00||4.00||5.00||6.00||7.00|
|Total EV TwH||19||88||268||1,441||3,053|
|ICE Fuel Gallons (bn)||423||421||406||290||176|
|CO2 Emissions (Gt)||3.8||3.8||3.6||2.6||1.6|
(Source: Morgan Stanley Research)