Following California’s lead, electric vehicle adoption in the United States has passed a significant tipping-point in 10 states

The first half of 2023 has seen the adoption of electric vehicles (EVs) in the United States continue to accelerate, hitting 9% of total passenger vehicle sales (relative to only 2% as recently as 2020). Despite EVs being more and more visible, compared to penetration rates of 24% and 17% in China and Europe respectively and at only 1.2% of the total passenger vehicle fleet in the US, there is incredible growth to come.

Beyond the headline statistics, it is of great significance that 10 states now have electric vehicles accounting for at least 10% of total vehicle sales. This is significant because for some time critics have suggested that EVs were a California-only phenomenon, and that the state’s more rapid adoption has distorted total EV sales.

While California leads the way in the US (with EVs accounting for 25% of total vehicle sales and 3.5% of the total vehicle fleet), there is a long list of laggards which offer extraordinary growth potential over the medium term.

The 10% ratio proved to be a tipping point in California. When it passed this threshold in 2021, sales more doubled to the present level of 25% in less than two years. This validated our belief that mass adoption is well underway within the US. We forecast that EVs will account for at least 25% of total passenger vehicle sales in the United States by 2025 and over 50% by 2030.

Who is selling most vehicles?

While traditional automakers and start-ups have been launching a great number of EV models in the US, at this stage Tesla is the only manufacturer operating at anything approaching a sustainable scale. While Tesla’s products accounted for only four of the c.100 models available, Tesla sold 325,291 vehicles during the first half of 2023 which represented c.60% market share and was nearly 10 times larger than its next closest competitor (GM with c.6% market share).

Only Tesla’s Model 3/Y platform is selling at an economically sustainable volume (scale sufficient to operate a full-scale assembly plant at a minimum of 80% utilisation). This is an extraordinary first mover advantage on the basis that it will allow Tesla to be considerably more aggressive in terms of how it competes (i.e. discounts to move volume and grow sales).

What is the best way to be positioned in order to benefit from the EV boom?

The implications of mass adoption in this enormous market (the world’s largest economy and second largest vehicle market behind China) are extraordinary. The disruption will be considerable and stretch well beyond the obvious implications for the manufacturers of EVs such as Tesla, for example:

Specialised components

• Electric motors – the propulsion system. While the global electric motor market is well established (c.US$100 billion annual revenue and excluding EV electric motors is growing at GDP growth rates), the EV electric motor segment offers incredible investment opportunities driven by its smaller size (c.US$5-10 billion) and very high growth rate (c.30% per annum).
• Microchips – the average EV contains 3-10x more microchips than an equivalent internal combustion powered vehicle. The market for automotive microchips is highly specialised and growing more than double the rate of the broader microchip industry. We forecast demand for automotive microchips growing at 13% per annum to 2030.

Infrastructure

• Charging – in line with sales of EVs in the US lagging China and Europe, charging infrastructure has also lagged and represents a very attractive opportunity. At the end of 2022, the US had only 147,000 charging connectors relative to China and Europe at 1.8 million and 683,000 respectively. Rising EV penetration in the US is a lead indicator of extraordinary investment in and growth of EV charging infrastructure.
• Electricity – EVs will significantly increase demand for electricity. US electricity demand is likely to increase c.20% by 2030 (c.2% per annum) relative to an increase of only c.5% over the last decade (c.0.5% per annum). Will this crash the grid? No. A typical EV, being driven c.20,000 kilometres per year and charged at home consumes a similar amount of electricity as a residential electric water heater over the course of a year. Volume growth for electric utilities, grid-level distribution equipment and off-grid generation (residential solar) will be considerable beneficiaries.

Critical raw materials

In addition to new materials for the automotive industry such as lithium and graphite in the batteries and rare earths in the electric motors, established commodities will be considerable beneficiaries.

• Copper – a key input within electric motors. EVs contain 2-3x more copper than an equivalent conventional vehicle.
• Aluminium – essential for a lightweight body to maximise efficiency. EVs contain 1.5-2x more aluminium.
• Silver – a key ingredient in the electronics. EVs contain 2-3x more silver.

T8 Energy Vision has unique exposures to electric vehicles (diversified by region and vehicle types), their supply chains (microchips, electric motors, autonomous hardware and software, specialty inputs and critical raw materials) as well as critical infrastructure (electric utilities, charging hardware and networks) on the basis that we believe they represent an extraordinary investment opportunity at this stage of evolution.