Is this the right time to buy into electric cars?
What was once perceived as the ramblings of wildly imaginative minds is fast becoming a reality in the automotive industry: the electric car. The green revolution is one component of the paradigm shift that has taken place from gas-guzzling autos in the erstwhile hub of car manufacturing, Detroit. Nowadays, smart technology is being fused with green energy to create the ultimate vehicle.
One need look no further than Tesla and its Model 3 as a case in point. Here are some quick specs on the exciting new developments at Tesla:
- The Tesla Model 3 will be delivered in 2017
- Tesla shares have surged by 10% in 2016 (year to date)
- The Tesla Model 3 vehicle has a range of 346km (215m)
- Already 300,000 customers have paid the $1000 registration fee
Daimler, parent company of Mercedes-Benz, purchased a 9.1% share in Tesla in 2009, but subsequently sold the $50 million stake for $780 million in 2014. They may be ruing a missed opportunity to profit from the explosive potential of electric cars when they finally become mass-market items. However, next year Mercedes-Benz is expected to release as many as 10 plug-in hybrid automobiles and they have pledged to develop an all-electric car that can drive 500km per charge by the end of 2019.
How are car manufacturers coping with the competition from Tesla?
While it is difficult to isolate individual elements when it comes to financial performance among automobile firms, share prices speak volumes. For example, VW shares have dropped 17% as a result of the diesel scandal, Daimler shares are down 20% in 2016, while BMW shares have plunged 25% owing to the massive slowdown in China. On a more positive note, Mercedes-Benz has enjoyed a 13% surge in car sales in Q1 2016 over Q1 2015, with 483,000 cars being sold.
Silicon Valley is fast becoming the new hub for electric and smart vehicles. Leading the charge is Alphabet (parent company of Google) as they continue to test self-driving cars. The goal of tech pioneers like Alphabet and Tesla is to develop self-aware vehicles that will ultimately be able to communicate with one another and the ecosystem in which they exist, combining smart technology, eco-friendliness and maximum safety and efficiency.
General Motors and the other automotive industry majors may have little to fear in the short term, but over time the slow march towards electric vehicles could become a mad rush as prices come down and global sales start to rise.
Should you invest in electric car firms?
There is no proof in the short term that electric vehicles will provide a quick investment return. This is in all likelihood a niche market that requires extensive capital investment, testing and clearance from watchdog authorities. The development of the entire ecosystem required to support Alphabet’s concept of an AI vehicle is still a distance away.
In the long term, however, electric vehicles have plenty of promise as evidenced by the shift away from crude oil – even by Saudi Arabia which has now set up a $2 trillion fund for alternative economic activities. We might expect that petrol- and diesel-powered vehicles will eventually be phased out and electric vehicles will become the norm, given time. As an investor with a strategic approach to the automobile sector this is definitely an opportunity not to be missed.
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The content of this article is the personal opinion of the author and not Intertrader Direct. The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest. Nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.