Although the prospects for electric (EV) and autonomous vehicles (AV) remain strong in the mid- to long-term, the growth of the industry was hampered in 2020 by the COVID pandemic.
Major US automakers were forced to temporarily close their plants during the first quarter, which according to a Navigant Research principal analyst gave the companies more flexibility to manage production and inventories to deal with declines in demand. In addition, European carmakers also closed their factories amid health concerns for their employees, falling demand, and severe disruptions to manufacturing supply chains, including China.
Overall, for the year, global auto sales are down an estimated 80 million vehicles, for all types. Despite the pandemic, however, there is good news for the electric vehicle industry. With estimated PEV sales of 3.1 million worldwide in 2020, that represents a share of approximately 3.9% or almost one in 25 automobiles—which is up more than a full percentage point from 2019’s 2.5% share of the global market.
The US EV market remains vulnerable, especially depending on how long the current crisis endures. The US market is still in an early growth stage and is dependent on global sourcing for EV batteries. Low oil prices could also keep potential EV buyers on the side of internal combustion vehicles for the near term, given that EVs are more expensive and consumers could become more cautious in the wake of high unemployment levels.
On the AV front, which is closely linked to the development of EVs, China has accelerated the development of AVs in recent months for use as driverless delivery systems that would be useful in pandemic situations. AVs have provided a valuable mobility solution as they have been used to deliver necessary medical supplies and meals to health‐care professionals and the public in infected areas. According to Allied Market Research, the autonomous driving space is expected to witness a CAGR of 39.5% between 2019 and 2026 and reach $556.67 billion by 2026.
NIO Inc., a pioneer in China’s premium smart electric vehicle market and the largest automaker by weight in the Fund, had a very strong 2020, delivering 43,728 vehicles in all for the year, and increasing total deliveries by 112.6% year-over-year despite the pandemic. For the final three months of 2020, NIO delivered 17,353 vehicles in total, up 111.0% year-over-year for the same period in 2019.
EV automaker Tesla likewise had a strong 2020. The pioneer in the EV space delivered 499,550 vehicles in 2020, falling just a hair shy of its own goal of 500,000 deliveries. Overall, this represents a 36% year-over-year increase from the 367,656 vehicles Tesla delivered in 2019. And that comes despite the fact that Tesla was forced to suspend production at its main factory in Fremont, California, for two months in the spring to comply with a local stay-at-home order.[v] Although Tesla’s sales are negligible compared to those of the big automakers, its stock surged more than 700% in 2020, and it continues to be the most valuable car brand in the world based on market capitalization. Tesla is currently worth more than General Motors, Honda, Ford, Fiat Chrysler and Daimler combined.
Batteries and Fuel Cells.
Shares of Plug Power Inc., the Fund’s largest holding by weight in the auto supply chain segment, rose significantly during 2020 on increasing revenues and plans to vertically dominate the hydrogen fuel cell industry ‐ from hydrogen production to operation of hydrogen fuel filling stations to production of hydrogen fuel cells that run electricity powering machines and vehicles. The stock climbed 33% in the first five months of 2020, but really took off in the second half of the year as management boosted its 2024 forecasts higher after the successful acquisitions of United Hydrogen, a hydrogen producer and Giner ELX, a leader in electrolysis technology. The company beat analysts’ estimates in both Q2 and Q3, and in November announced the raising of approximately $1 billion USD in capital to help it build out its green hydrogen network. This network will consist of five regional green hydrogen facilities in the US which are expected to be operational in 2024. All told, Plug Power stock surged an impressive 1000% in 2020.
In the auto parts and equipment segment of the Fund, Ballard Power, a hydrogen fuel cell manufacturer, also experienced a sharp uptick in its price. In a whitepaper issued by the consulting firm Deloitte in conjunction with Ballard, it was noted that “fuel cell electric vehicles are projected to be less expensive to run than battery electric and internal combustion engine vehicles within 10 years,” providing impetus for Ballard’s stock.The company’s stock surged upward 60% late in 2020 with the election of Joe Biden as the next US president. The Biden administration’s $3 trillion USD plan to fight climate change proposes heavy investments in clean-energy alternatives to fossil fuels, including hydrogen. Ottawa is also expected to unveil a national hydrogen strategy in the near future that will see a network of hydrogen fuelling stations installed across the country by 2050.
FuelCell Energy, another hydrogen fuel cell manufacturer held by the fund, received a $3 million award from the US Department of Energy to promote the commercialization of its reversible solid oxide fuel cell project. FuelCell Energy was also buoyed by the passage in December of the latest stimulus bill by the US Congress. The legislation includes more than $2 billion aimed at modernization of the power grid, proving a potential catalyst for future growth in the fuel cell industry.
Investing in Future Cars and Driving Our World Forward
The auto industry is poised to undergo the biggest transformation in a lifetime. With the automobile industry racing towards autonomous driving and electrification, there is a growing demand and opportunity to invest in this industry.
The Evolve Automobile Innovation Index Fund (trading on the TSX under the ticker: CARS), is Canada’s first automobile innovation ETF. The Fund takes a diversified approach to investing in the supply chains behind autonomous, connected, electric, and shared vehicles.