Analysts warn many brands will fall as new electrics rise

2018-01-18 06:01

EVERY revolution has casualties, and the electrification of the car industry will be no different, said Katherine Davidson, global sector specialist from global asset manager Schroders.

She said all the big names plan to electrify their drive-trains, adding consumer and government pressure will send such climate change efforts into overdrive. High production costs still prevent people from buying into electric, but Davidson pointed out especially battery costs are falling rapidly and predicts profitability “could surprise to the upside”, as consumer receptiveness to EVs is improving rapidly.

“Government messaging, anti-diesel sentiment and a spate of attractive EVs hitting the market from this year could spark an inflection point for demand.

“If so, manufacturers could begin to price the vehicles at less loss-making levels.”

She said there was also an enormous amount of battery capacity being built in Korea and China. “Battery costs could fall faster than expected due to scale alone, before we consider ongoing improvements in chemistry,” Davidson said.

She predicted a few big names will emerge as EV parts makers and warned the simpler construction of electric drivetrains would also ultimately mean less manufacturing jobs. She warned the investment burden and near-term disruption associated with the transition would be high.

Davidson said in terms of who is actually prepared for electric cars, there was very little to choose between the big players, but believes the industry will look very different in the future.

“We could end up with an industry that looks more like the smartphone market: a few big companies competing primarily on design and brand. In a market historically plagued with overcapacity, this needn’t be a bad thing.”

Schroders portfolio manager Simon Webber added the cost of this seismic industry shift is not fully appreciated by investors. He predicted car industries in the U.S. and Europe will lag while manufacturers in Korea and China are likely to dominate the economies of scale in battery manufacturing, threatening the future of significant chunks of industry employment in other regions. Around 12 million people work in the automotive industry within the EU, of which 3 million are in manufacturing.

“Companies and nations will need to adapt and retrain their workforces very quickly to mitigate the problems associated with major shifts in employment,” Webber said.

— Supplied.

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