Why is it Important to Understand the Risks Before Investing in the Electric Vehicle Ecosystem?

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The electric vehicle revolution provides ample growth opportunities for stakeholders that are involved in the EV ecosystem. However, companies must analyze several factors before making significant investments in the market. The growth of the EV industry does not necessarily spell good news for every company that invests in it. Strategizing investments is integral for the stakeholders to be successful in the market. The risks that are faced by three major stakeholders in the industry are mentioned in this post.

1. Electric Vehicle Battery Manufacturers

The battery technology is at the core of the electric vehicle revolution. Both established producers of lithium-ion batteries and smaller start-ups are rigorously working to develop and commercialize improved battery technologies that can improve the performance of electric vehicles. However, bringing a new technology to the market involves heavy investments that are exposed to several risks. These risks, if not identified and mitigated, can result in huge losses for stakeholders.

A123 Systems, a pioneer in the development of lithium-ion battery technology, went bankrupt in 2012, despite securing investments of over a billion dollars. The company had opened manufacturing facilities in Michigan, but overdependence on a single customer cost the company heavily. On the other hand, Envia, a battery start-up focusing on improving the existing battery technology, faced a similar fate, despite having support from a leading automaker such as General Motors. Several other companies, such as Valence Technologies and Ener1, also struggled to maintain their market positions due to excessive debts and lack of demand, respectively. Battery manufacturing, being a capital-intensive process, requires companies to strategize their investments in order to avoid the multiple risks that are involved in the market.

The development of batteries with improved performance while ensuring the feasibility of commercial-scale manufacturing is integral to the market growth of EV batteries. However, there are downsides to every strategy that a company might adopt to enter or expand in the market. Therefore, risk mitigation is not only necessary but also different for different companies that are trying to venture into the EV battery market.

2. Electric Vehicle Charging Network Operators

The operation of electric vehicle charging networks provides an attractive investment area for companies that seek to capitalize on the EV revolution. As the governments across different countries have been promoting the setting-up of charging stations through various kinds of subsidies, companies from various industries and of various sizes have entered the market.

Several oil and gas companies such as Royal Dutch Shell, Chevron Corporation, and British Petroleum plc have entered the market through partnerships with and acquisitions of network operators. EV manufacturers such as Tesla and BYD have integrated themselves to provide charging services. Moreover, charger manufacturers such as ABB have also set-up charging networks for electric vehicles. Additionally, state-run and privately held electric power distribution companies have an opportunity to forward integrate into the ecosystem to provide charging service for electric vehicles.

Considering the case of ICE-vehicles, in 2018, around 100 million passenger and commercial vehicles were sold globally. The industry has existed for over a century, and the global ICE-fleet in 2018 was well over 1 billion vehicles. The fuel requirement of such a huge fleet is served through refueling stations that are owned by a limited number of companies in each country. Comparing the huge fleet of ICE vehicles with the minor 5.1 million fleets of electric vehicles in 2018, it is evident that the EV industry is relatively very small as compared to the ICE-vehicle industry. Several companies are trying to co-exist to serve this small fleet of vehicles by selling electricity, which is much cheaper than petroleum/gasoline. This raises serious questions on the profitability of these service providers. While home-charging is expected to remain prominent and with limited use of public charging stations, the companies must look at investment areas that keep them relevant in a highly competitive market.

3. Electric Vehicle Manufacturers

Electric vehicles cater to a huge addressable market, and the government gives full support to companies that help make the automotive sector emission-free. The monetary push from the government, along with the possibility to earn huge revenue, pushed several companies into the electric vehicle manufacturing industry. Companies, both near and far from automotive manufacturing, wanted to have a share in the upcoming revolution. The industry has witnessed a few success stories, but several companies suffered due to the multiple risks that companies did not identify before investing heavily in the market.

Fisker Automotive, Coda, Dyson, NIO, and Faraday Future are popular names that were set to revolutionize the automotive industry but fell prey to the multiple risks that the industry poses. The bankruptcy case of Coda highlights the importance of understanding consumer requirements and creating products that meet consumer expectations. On the other hand, Dyson’s decision to scrap its EV plans in 2019 highlights the necessity of having a clear understanding of the market competition before investing heavily in the market. Fisker Automotive, NIO, and Faraday Future present popular cases of EV manufactures that failed in the market due to the lack of short-term checkpoints and clear investment plans.

Gain insights on identifying the risks present in the ecosystem and incorporation of business strategies that can help overcome them along with the knowledge of the entire EV ecosystem. Register for the webcast on ‘Strategize Your Investments in EV Business: Transform Risks and Rewards’ on Wednesday, January 22, 2020 at 10:30 AM (PST), with keynote speakers Adalberto Maluf (BYD Auto), Ryan Maughan (AVID Technologies), and Ajeya Saxena (BIS Research).

BIS Research offers exclusive market intelligence reports on disruptive technologies. Each year we publish over 200 titles across industry verticals.

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