Electric Cars: Winners and Losers – 1/6/17

According to Bloomberg, 35% of new vehicles worldwide will be electric by 2040.

Clearly, there is a lot at sake and some players in the car market will make the transition better than others.

Tesla with its Model 3, hyped as an electric car affordable enough for mass market appeal, seems like an obvious choice for a successful car company in the age of electrification, so long as it can deliver on the 400,000 or so early reservations and keep up the momentum from there.

However, Tesla is not the only company making electric cars. For now, Tesla’s futuristic design and brand fits the typical electric car buyer, who tends to be more environmentally- or socially-conscious than utilitarian. That advantage could be lost once Tesla starts trying to sell to customers more concerned with price than perception.

If there is one area where big car makers can beat Tesla, its on price, at least as long as they have economies of scale and established supply chains to rely on. Just this year, in direct competition with Tesla, GM plans to release its all-electric Chevrolet Bolt at similar price point. And most other global car brands plan to flood the market with competing electric vehicles by 2020, potentially swamping Tesla in the process.

It’s just hard to see how a company that has made less than a million cars in its existence could compete on affordability with those that make millions in a year. On the other hand, Tesla could still win big selling batteries to those companies as it completes its Gigafactory.

Still, even if the big car makers take over the electric car market, they haven’t shown they can actually earn the profits they’re used to. The biggest winners of the electric car boom may wind up being the car makers’ parts suppliers.

The electrification vehicles brings the concern that components for the engine, exhaust and other functions related to the internal combustion engine will become obsolete. And, sure, suppliers that have invested heavily in hybrid technologies are likely in trouble given that most emissions-reduction strategies are now focused on purely electric vehicles.

However, these risks look manageable for the largest players in the supplier realm that can afford to shift into the parts that will matter. After all, electric cars will require their own electronic components for the web-based and self-driving features of the future. In the end, the winners from changes in the car industry may not be car makers but tech-savvy suppliers.

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