I believe that in years to come, many will still remember negative crude oil price. What this means is that someone pays to unload his crude oil stock. There was an immediate impact which halved the pump prices and made car owners like me very happy. A friend of mine asked if this will put the car electrification drive of major manufacturers on hold, since low oil prices negates the strongest argument for electric car purchase?
When we looked at the sales figures of conventional internal combustion (ICE) cars and electric cars during the pandemic, what strikes us most is that while the ICE car sales plummeted in most markets, electric car sales held quite well.
During this period, too, we witnessed Tesla’s market valuation surged and is now worth more than Toyota, Ford and GM combined. Tesla’s market capitalization is 4 times more than the best performing luxury car maker in the world, Mercedes Benz. This goes to show that the market still favors pure electric car players.
The traditional car makers faced an uphill task, even having a hard time convincing their board to keep up with the push for car electrification. During the pandemic, car sales fell sharply, and that put many car manufacturers under intense cashflow pressure. If, at the same time, the management wants the board to continue funding the expensive car electrification project without the clear and imminent payback period, you can imagine how this will turn out and true enough, in VW we saw a board tussle that nearly threw out the CEO/Chairman.
It does not help that in Germany the powerful trade union representatives sit in the board of directors, and they have to show that they fight for the workers who are in imminent danger of being replaced by the car electrification strategy. At the very least, they cannot display too much enthusiasm for car electrification.
Car electrification comes with high transitional costs, but that does not affect the pure electric car players. Hence, if we believe that electrification is going to be the inevitable outcome, then the pure players have a clear and substantial advantage, since the transition costs elude them.
All signs point to the continued and sustained growth of electric cars and it is only a matter of time they become the mainstream vehicles on the road.