Electrification accelerates

Tesla’s brilliant year

Tesla’s Model 3 was second on the list of the UK’s best-selling cars in 2021, nearly taking the ‘crown’ from the trusty Vauxhall Corsa. More than a quarter (26 percent) of all new cars sold in the UK in December were either an electric vehicle (EV) or a hybrid, while petrol-powered cars fell to just 46 percent of sales. Tesla’s cars accounted for nine percent of the UK market last month, making it the number-one automotive brand in the UK for the first time – ahead of Volkswagen (whose leading model is the VW Polo), on eight percent and Audi, on seven percent.

Tesla’s UK sales of 9,300 cars in December, were more than two thirds up on the year before. In Germany, Europe’s largest car market, Tesla’s sales for December reached 6,662 units – just under three percent of the total market, and predictably well behind the four German automotive behemoths. In France, where only 15 percent of car sales were battery-powered last month, Tesla’s Model 3 was only the fifteenth most popular car, with just 1.5 percent of total sales. The leading model of EV in France is still the Renault Zoe.

While the best-selling car in the UK last year was the Vauxhall Corsa with 41,000 sales, the most popular vehicle overall was the Ford Transit Custom van (manufactured in Turkey), with over 50,000 units sold.

Analysts still consider that Tesla’s models are favoured by early adopters. These are mostly well-off people with incomes above £100,000 per year, who have short commutes and a drive with their own charging points. In the UK, the Model 3 is still perceived to be a luxury car. More affluent areas such as Oxfordshire, Bristol and London are leading the way in the take-up of EVs. Importantly, a surge in the price of second-hand cars in the UK during the pandemic has made new models such as the Tesla Model 3 more competitive.

Tesla has a market capitalisation of $830bn at the time of writing (this morning), although its share price is down by over $100 in the last few days and its market cap has fallen from $1.2trn at the beginning of the year. It therefore still has the financial muscle to invest in the development of new models and technologies. Last year, Elon Musk moved Tesla’s domicile from Palo Alto, California, (where he described the lockdown regulations as “fascist”) to Austin, Texas. Texas has no income tax and some of the lowest energy prices in the US.

On 26 January, Tesla announced record profits of $5.5bn on sales of $53bn for 2021. Tesla sold a record 936,172 cars last year. New factories in Austin and Berlin are due to begin operations this year, plus the Fremont, California and Shanghai plants are being expanded – so capacity expansion will prospectively meet rising demand. Last year, the Shanghai plant accounted for almost half of Tesla’s total production. Despite growing sales, Tesla has faced delays in launching its new Cybertruck pickup and Roadster sportscar as well as its proposed Semi transporter.

Tesla may announce further breakthroughs in self-driving vehicles this year and has already signalled a move into robotics. Musk has suggested that Tesla is “arguably the world’s biggest robotics company”. The major downside risk is that in the event of major geopolitical disruption around Taiwan, Tesla might be cut out of China, which is half its market. China has already banned all Tesla vehicles from military installations, apparently because Beijing fears that integral video cameras might be sending images back to US intelligence.

The share-price correction over the last week should be seen in the context of the overall market sell-off on Wall Street.

Resistance to EVs

Although more and more motorists are making the transition to EVs, there is still some resistance. Firstly, doubters point to “range anxiety” – concern that they will run out of power before the journey’s end. Second, EVs are still more expensive than their analogue alternatives. A new, petrol-powered, five-door Vauxhall Corsa currently costs from £17,380; whereas a new, five-door e-Corsa will set you back £25,805ⁱ − so nearly 50 percent more. Third, although EVs are cheaper to run (a Tesla M3 can go for 200 miles on a £5 charge) and to maintain, many people have concerns about the environmental impact of battery manufacture and recycling.

In the first week of January, Mercedes unveiled its Vision EQXX prototype EV which has a range of about 620 miles on a single charge. Similarly, Chinese logistics company GAC Group’s Aion LX Plus SUV will be able, so they claim, to travel 626 miles. Further, US EV start-up Lucid is about to unveil a model with a 500-mile range. By comparison, a good, modern, diesel SUV with a 62-litre tank can cover approximately 700 miles,

As yet, we don’t know when the Mercedes model will become available nor how much it will cost. Reportedly, Mercedes is using a manufacturing process developed by China’s Contemporary Amporex Technology Limited (CATL) to keep the battery weight down to 495 kilograms – equivalent to that of the Tesla Model 3 battery, which has just half the range.

There is a debate amongst engineers about the optimum range of an EV battery, given that the longer the range, the heavier the battery. Obviously, the heavier the battery, the greater the required charge. A petrol or diesel-powered car declines in weight as fuel is burnt; but EV batteries are just as heavy when flat as when fully charged, since electricity has no mass.

Very few people would want to drive 600 miles without taking a break (though maybe a self-driving, robot car would); and the average car journey in the UK is less than 30 miles. The time taken to charge an EV battery is dropping, as chargers become more efficient. Thus, range anxiety is going to become less of an issue as the charging infrastructure expands.

Currently, the Tesla Model 3, the carmaker’s entry-level option (at about £43,000), can charge from 20 to 80 percent in 20 minutes, using the fastest-available public chargers. That should provide a range of about 305 miles or, if you prefer, about six hours driving at a speed of 55 miles per hour (the speed limit on most US trunk roads). Of course, air con, in-car entertainment and even braking also consume juice. In a cold winter, internal heating (seat-heaters and so forth) will constrict range further.

Tesla has a network of 80 ‘superchargers’ across the UK which are available exclusively for Tesla owners. That is due to be increased to 110 charge stations. It has similar networks across Europe, except that in the Netherlands owners of other brands of EVs are allowed to use them.

Research conducted by British Gas, published this week, revealed that the cost of electricity per kilowatt hour from public charging points varies hugely from one region to another in the UK. EV owners in the southwest of England are paying 63 pence per kilowatt hour, while those in the West Midlands pay just 20 pence. That said, there are still 21 councils in England and Wales where it is free to charge your car, in a bid to promote the uptake of EVs, including Southampton, Bradford, Lancaster and Tunbridge Wells. Many British homes lack drives or garages to facilitate charging at home.

We still have a relatively poor understanding of how the efficiency of EV batteries declines over time – but we know that they do; and that, of necessity, no EV will be viable after about 15 years of average motoring without the installation of a new battery – which would be uneconomic. But then most cars powered by internal combustion engine are scrapped by their fifteenth birthday too.

The first UK EV-battery gigafactory

The green light is shining for Britishvolt which is set to lay the foundations of its planned gigafactory in Blyth, Northumberland with a reported £100m of government backing and a further £1.7bn of private finance. Britishvolt hopes to turn the site of a decommissioned power station into Britain’s first EV-battery factory.

The site resides within the parliamentary constituency of Wansbeck, one which Labour held in 2019 with a majority of just 814 votes. It lies adjacent to Blyth Valley, one of the ‘Red Wall’ seats which was won by the Conservative Party at the last election. Britishvolt is talking about creating 3,000 new jobs and will prioritise employing local people.

Britishvolt, which is run out of Dubai, has a chequered past. In December 2020 its co-founder Lars Carlstrom was forced to quit after it was revealed that he had been convicted of tax fraud in Sweden. Thus far, the company has not manufactured a single battery, so its production technology is yet to be tested.

In a BBC interview, Britishvolt chief executive Peter Rolton suggested that the company’s first contract was likely to come from the public sector. There are reports that niche, luxury carmaker Lotus may also sign up. Lotus, based in Norfolk, manufactured just 1,700 cars last year and its only EV thus far is a £2m supercar. Some of its models are likely to be built in China, the home of its parent company, Geely.

By investing in Britishvolt, the Johnson government is attempting to create supply before there is proof of demand. The hope is that the Blyth factory will kickstart a UK EV-battery industry. Some industry analysts reckon that without one, the UK automotive industry, which accounts for about 800,000 jobs, is doomed. Nissan, located in nearby Sunderland, has its own plans to build a gigafactory in the region.

The UK car market in 2021

For all that, the UK car market has been contracting. Last year, UK car production fell to its lowest level since 1956, as semiconductor shortages hit home – between 1,500 and 3,000 computer chips are required in the manufacture of an average modern car. Also, Honda’s Swindon factory closed − the popular Civic model had been manufactured there for years. Almost a million (859,575) cars were manufactured in the UK last year – 61,353 fewer than in 2020. At the recent industry peak in 2016, 1.7m cars were manufactured in Britain.

And the outlook for 2022 is not great. Jaguar Land Rover (JLR) is planning to end production at its Castle Bromwich plant. Vauxhall (owned by Stellantis, the automotive giant formed from the merger of Chrysler and Fiat) is planning to make vans rather than its Astra model at its Ellesmere Port plant. On the other hand, commercial-vehicle production is on the up. It jumped by over a fifth last year and is nearly back to 2019 levels. With internet shopping on the rise, the demand for delivery vehicles has spiked. Further, the pre-Brexit investment cutbacks have abated.

The automotive giants respond

Volkswagen plans to make one quarter of its total car sales battery-electric by 2026 and is spending €90bn on R&D. Its luxury-car UK subsidiary, Bentley, also has big plans to electrify. The iconic brand will release a slew of new EV models, all designed and developed in Crewe, where it employs 4,000 people. Bentley will source its battery packs from Europe.

Ford’s Mustang Mach-E is selling well. But some long-established automotive players are taking the long view. Toyota is developing all-hydrogen cars and vehicles. These might be better suited to countries with thinner charging-point networks.

And some manufacturers with no experience in the automotive sector are piling in. Sony, the consumer electronics and entertainment giant, has unveiled a futuristic concept vehicle. Amazon is backing a new range of electric vans from Stellantis and has also invested in the EV start-up Rivian. Apple is thought to be working on an EV concept too.

Last thoughts

If you are a glass-half-full investor you may surmise that all these players will benefit from an emergent technology as the barriers to entry are relatively modest. But if you are a bit glass-half-empty (as I tend to be) you might fear that, with every week bringing new players into the EV universe, the competitive environment will only intensify. This market is going to get crowded.

And then there is the question – which I have posed here before − of whether we will want to own a car at all if we can summon a self-driving taxi with an Uber-style app or conjure an electric-powered, flying pod with our smartphones.

Undoubtedly, the technological race is on, and some remarkable things will come out of it. Tesla has been rightly regarded as a tech stock rather than an automotive player. One way to look at Tesla is that it is a battery developer which also makes carriages (a design concept with a 5,000-year history) as an add-on – and then people buy the package.

The internal combustion engine used to be regarded as one of the greatest technological advances of human history. And now it looks so ‘last century’. But it might well turn out that, within my lifetime, the battery-powered EV is surpassed and eclipsed by hydrogen-powered vehicles. The ground is moving under our feet.

PS

I’m not getting political here, but my best guess is that Boris Johnson will survive the political fracas in which he has been engulfed these last weeks. As a disciple of Winston Churchill, he will be well-acquainted with this advice: “If you find yourself in hell – just keep going”.

It would be absurd to defenestrate a prime minister for dropping into a staff gathering in a place of work (Downing Street is not a “public space”) or eating birthday cake when the door of his flat was open. As the majestic Lord Sumption told the BBC’s The World at One on Tuesday, there were exceptionally poorly drafted laws in force at the time which were subject to interpretation. And very few people have ever been charged under these laws anyway – convictions that I suspect will be reversed in due course.

I know people were unable to be with their loved ones when they died or told to stop “chanting” at Christian funerals – and that is the real issue. These laws enforcing the lockdowns were inhuman and in breach of English common law. It is highly debatable that they were either efficacious or necessary. The real debate should be about whether a government has the right to restrict civil liberties on public-health grounds at all. If the state treats people as adults, they should be permitted to assess their own risks.

Now the debate has shifted to whether the prime minister was complicit in flying Afghan dogs out of Kabul last August. How trivial and perverse can the Labour Party and the mainstream media get?

I have never been a fan of Johnson, as regular readers will know. I am aware of his shortcomings. But he has shown dedication in the discharge of his duties and there are no safe candidates to replace him at a moment when we face a geopolitical crisis. As Lord Sumption opined on Tuesday:

“The facts are pretty obscure…I have to say that they (the Metropolitan Police) regard the law as cut and dried…Personally, I feel that the right reason for getting rid of a prime minister is that he may not be a good prime minister. I can’t help feeling that getting rid of him for going to a garden party or a birthday party in his flat is a rather trivial reason for doing an enormous thing”ⁱⁱ.

Listed companies cited in this article which merit further investigation:

• Nissan (TYO:7201)
• Geely Automobile Holdings Ltd. (HKG:0175)
• Daimler AG (ETR:DAI)
• Contemporary Amporex Technology Co. Limited (SHE:300750)
• Stellantis NV (BIT:STLA)
• Volkswagen AG (
• Sony Group Corp. (TYO:6758)

i^ On the road price. See: https://store.vauxhall.co.uk/configurable?fuel=Electric

ii^ Listen to the interview at: https://www.bbc.co.uk/sounds/play/m0013rrp