How to Profit From the Death of Internal Combustion
According to the International Energy Agency (IEA), in order to solve the climate change crisis, we must stop using gas-powered cars, completely abandon new coal mine development, and end oil exploration within 14 years.
This is a tall order and one I’m quite certain is not going to happen.
While I’m certainly enthusiastic about the rapid transition of the global transportation economy, political and economic hurdles will make this virtually impossible.
That being said, the recommendation to stop using gas-powered cars is not only doable but already happening.
We already know that in less than 20 years, nearly 60% of all new car sales will be electric. And U.S. municipal bus and truck fleets are now actively transitioning away from internal combustion, with more than half of those vehicles expected to be electric within 15 years.
Make no mistake: Internal combustion is going the way of the rotary phone and typewriter — but it’s not going to disappear as quickly as the IEA would like.
The Quest for Price Parity
If you’re a regular reader of these pages, you know I’ve been bullish on electric cars for more than 15 years. Back before Tesla (NASDAQ: TSLA) was public and anyone knew what a charging station was, and when there weren't even any highway-capable electric vehicles on the roads.
But a lot has changed in just 15 years.
We went from having a nonexistent electric vehicle market to one that was valued at more than $273 billion in 2020 and will be worth more than $800 billion in seven years.
And by the way, this growth has nothing to do with battling climate change either.
This is simply about consumer demand, which has been the primary growth driver over the past 10 years, and leverage, which is what’s really going to allow electric vehicles to dominate the transportation sector.
You see, the internal combustion engine has long had leverage in that nothing else can compete on cost. Even today, with the electric vehicle market booming, internal combustion vehicles still win on price.
Truth is, I know plenty of folks who would love to own an electric car but just can’t afford it.
According to Bloomberg New Energy Finance, electric cars will be cheaper to produce than conventional vehicles by 2027, thereby initiating price parity with internal combustion.
This is a major milestone for the EV market and one that will set the foundation for an even faster transition away from internal combustion.
Based on Bloomberg’s data analysis, the combination of dedicated EV production lines in carmakers’ plants and the plummeting costs associated with producing EV batteries is what will bring electric vehicles to price parity with conventional internal combustion vehicles.
And this is in absence of any sort of government subsidies, by the way.
While I do find the data and data analysis on climate change to be sound and convincing, I’m not foolish enough to believe that the transition to electric vehicles is one that’s been instigated by a sudden interest in saving the planet.
I don’t say this to be defeatist. It’s merely an observation of truth.
And here’s more truth…
The days of electric vehicles being little more than toys for wealthy eccentrics and overzealous tree huggers are over.
Every major automaker in the world either has an electric vehicle in the showroom or in development. And most of these companies are looking to be exclusively in the EV game in less than 20 years.
Eventually, we won’t even refer to them as electric cars.
They’ll just be “cars.”
And investors who were smart enough to invest early in this space?
Well, they’ll just be rich.
To a new way of life and a new generation of wealth...
@JeffSiegel on Twitter
Jeff is the founder and managing editor of Green Chip Stocks, a private investment community that capitalizes on opportunities in alternative energy, organic food markets, legal cannabis, and socially responsible investing. He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.
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