Both legacy automakers and startups are focused on the electric vehicle space, which brought in record amounts of capital commitments and private investment last year.
Venture-backed startups in the EV space raised upward of $20 billion in 2021, more than double the nearly $10 billion raised by companies in the sector in 2020. That’s after auto giants like Ford and GM announced plans to commit billions to EVs over the next several years, which means acquisitions, partnerships and other activity in the sector is expected to pick up.
“What’s driving all this is fear of missing out,” said Garrett Nelson, a senior equity research analyst covering the automotive sector at research firm CFRA. “It’s a multitrillion-dollar opportunity longer term. And as more partnerships are announced, the wheels are turning for other companies that aren’t participating in some way and are looking to get involved. I think you’re bound to see additional announcements in the coming months.”
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Automakers last year made large capital commitments to electrification, while this year they are focused on execution, according to Nelson. Just last week, Ford announced it will reorganize the company to split its EV and combustion engine units into separate businesses. Soon after, Honda and Sony announced a partnership to form a new company that develops and sells electric vehicles.
Automakers are under pressure by policymakers in California, New York and other places that have set targets for the number of electric vehicles expected to be on the road in the future.
But while more companies could partner to design and sell EVs, many of those partnerships may not amount to anything, given the expected competition in the EV market, Nelson said.
About 50 new EV models are expected to debut in North America by 2024, and a flood of new supply makes for a competitive environment, Nelson pointed out. Many of the new models coming to the market will struggle to achieve commercial success, he added.
“I think there’s a realization by investors that it’s going to be difficult for newcomers to compete in the space,” Nelson said. “Even Rivian and Lucid, they just don’t have the scale that traditional automakers do.”
Newcomers have also faced liquidity issues, with stocks hit so hard that it’s difficult to raise capital. Some EV companies that went public through SPACs in the past two years, including Nikola Motor Co., have also seen their stock price underperform.
Survival (or consolidation) of the fittest
But while many newcomers may not survive, Nelson still expects there will be significant consolidation in the space. According to Crunchbase data, 37 companies in the EV space were acquired last year, up from 21 in 2020 and 17 in 2019.
Acquisitions are always at play, especially if a startup can help an automaker advance its EV goals more quickly, according to Josh Aviv, CEO of EV charging company SparkCharge. Acquisitions are likely to occur across the sector, he predicts.
Investment in the space is likely to be concentrated around charging infrastructure and grid management, Aviv said.
“It’s one thing to make a car,” Aviv said, “but how do we get the consumer in the vehicle and how do we keep them happy once they’re there?”
Consumer demand for EVs is already here and climbing, especially considering the spike in gas prices this year, Aviv said. He predicts that many people on the fence about getting an EV will make the switch this year.
Meanwhile, charging infrastructure is the main concern for many people looking to make the switch, and that means there will need to be significant investment in charging solutions for everyone, including those who park curbside and for vehicles like buses and ambulances, according to Jeff Prosserman, CEO of VoltPost, a startup that retrofits lamp posts into EV chargers.
“If we really want to be in a spot where we can go from that low market size to where we need to be to prevent climate disaster, frankly we need to have investment in equitable charging solutions and provide convenient charging solutions for all communities, not just people in the suburbs,” Prosserman said.
Illustration: Dom Guzman
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