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The growing ecosystem around electric vehicles
Peter Garnry
Chief Investment Strategist
Résumé: The EV adoption is growing at a rapid pace. It can be difficult to predict which EV maker will ultimately become the industry leader and therefore investors should consider getting exposure to the growing ecosystem of charging network and battery recycling as a way to bet on the future EVs. In this equity note we highlight the publicly listed companies with EV charging networks and battery recycling which are two industries that are going to experience high growth rates over the next decade.
Key points in this equity note
- The fast adoption of electric vehicles is given but it can be difficult to predict which EV-maker will win the EV industry. Investors may look at the ecosystem of EV charging networks and battery recycling as way to express a positive view on the future of EVs.
- EV charging companies will grow fast in the years to come and judging by the current figures that high growth will even be profitable unlike many recent growth industries because EV charging networks have strong network effects.
- Battery recycling is going be an important part of the EV ecosystem in the future and the growth outlook for this industry looks very positive.
EV charging industry is growing rapidly with positive profitability
As we recently wrote, the global electric vehicle (EV) industry has surpassed cumulative 10mn delivered EVs since Q1 2020 seeing growth rates as consumers in the US, Europe and China are adopting the new technology. While it can be difficult to predict which EV-maker will win the industry long-term, many are betting on Tesla right now, then what is certain is that adoption will increase and thus the input need for building EVs and the ecosystem that supports EVs. This means that we are constructive on industrial metals such as nickel, lithium, and copper on the manufacturing input, and positive on EV charging networks and battery recycling in the EV ecosystem.
We saw recently the perceived value of EV charging networks when carmakers such as GM and Ford adopted Tesla’s charging design. One could mistakenly think that these moves would be the end of other EV charging networks, but that is not what we have observed in the market. The outcome is rather, that the industry is moving towards one standard, but there will be many providers in the EV charging network industry. Our thinking is that the capital requirements for EV chargers are quite high, and as EV competition heats up and other EV charging networks grow, Tesla will slowly reduce its capital expenditures rate on chargers.
The reason why EV charging networks are interesting is that they will be become the future “oil pipelines” in the electrification and generate attractive returns because just like pipelines and railroads, multiple charging stations are not put close to each other. This also means that the economics of scale will increase over time and we also predict that in the distant future there will only be a few EV charging companies controlling the entire market. Already today, several EV charging companies are profitable or close to become profitable. This is another interesting feature. It is a fast growing industry and doing it with positive profitability.
The table below shows the largest publicly listed companies within EV charging and battery recycling highlighting the growing ecosystem around electric vehicles.
Batter recycling will become a huge market in the future
Yesterday’s bid read in the FT was about battery recycling and why the industry needs a revolution, and today the Wall Street Journal is also writing an article about battery recycling. As EV adoption will happen at a blistering pace and ore grades will deteriorate in the future, recycling of old batteries will be key to keep prices low on batteries and also a necessity for the environment as batteries are quite toxic.
The future growth prospects of battery recycling are so good that one of the biggest players in the global recycling industry, Umicore, has built its entire 2030 strategy, called RISE, around its Battery Recycling Solutions business group. Around 75% of its capital expenditures in the period 2022-2026 are going to be dedicated to battery materials, battery recycling, and fuel cells with battery recycling being the most significant growth business. Umicore already announced a significant scale-up of its battery recycling activities in Europe with a 150,000 ton battery recycling plant which will become the largest in the world.
The biggest pure play on battery recycling is the US publicly listed company Li-Cycle, but here the investor is betting on lithium-ion batteries being the long-term winning battery technology, or at minimum that Li-Cycle can change its recycling business if another technology wins out. In any case, the idea with today’s equity note is provide some inspiration to growing ecosystem around electric vehicles.