Investment community puts pressure on vehicle manufacturers to move with the times
Investors want original equipment manufacturers to produce electric vehicles — and the proof is in the valuations.
While the automotive industry globally is fast moving towards electric vehicles, the investment community is putting pressure on manufacturers, with lower valuations for those still producing old vehicle architecture.
Mark Lacey, the head of resource equities at global asset manager Schroders, says the investment community wants original equipment manufacturers (OEMs) to produce electric vehicles (EVs).
“And the proof is in the valuations — you see the difference between the valuation for a company like Tesla versus Ford, as an example,” Lacey says.
Earlier this year, the European Parliament gave the long-awaited go-ahead to ban all internal combustion vehicles by 2035. This poses a significant risk for South African manufacturers in light of the fact that Europe is one of their biggest markets.
Read more in Daily Maverick: EU reaches deal for ban on new combustion engine cars as of 2035
Mikel Mabasa, the chief executive of the National Association of Automobile Manufacturers of South Africa (Naamsa), concurs. In a recent discussion paper on the global transition towards new energy vehicles (NEVs), he hailed the transition as a “critical step to secure the future of the automotive industry in South Africa.
“Our rapid adoption [of] newer technologies is critical for the domestic automotive industry’s long-term success and growth. The only way to have a successful automotive manufacturing base is to keep up with technological developments,” says Mabasa.
“The South African automotive industry cannot be running on one development technology track whilst the rest of the world is way ahead on the same track. If we want to remain globally competitive, we have no option but to play with the big global players who are leading the NEV charge.”
Lacey says: “As a traditional OEM, you now need a supply of rock commodities like lithium nickel. You also need to figure out the different architecture of moving away from ICE [internal combustion engine] vehicles to an electric vehicle. You have to really reimagine the way you think, and it’s costing billions and billions of dollars to make this transition.”
He points to the fact that Tesla is currently ranked as the world’s eighth-most valuable company, with a market capitalisation of $586.3-billion according to companiesmarketcap.com. Ford, which makes many more cars, is valued at a much lower $50-billion.
Lacey says companies such as Tesla which were early to the EV table and had relatively no competition, have really benefited.
“[The valuations] really paint a big picture of where investors want these companies to go in order to take advantage of EVs’ growing market share, which has almost doubled over recent years,” he notes.
However, South African manufacturers have a few hurdles to overcome, not least of which is regulation. Mabasa says South Africa needs to “urgently enhance existing auto policies to facilitate a high-yielding business environment, including developing an attractive fiscal and regulatory framework that makes South Africa a highly competitive and compelling location for NEV production”.
An EV arms race
Additionally, and on a global scale, Lacey believes that an even bigger hurdle for manufacturers will be supply constraints. Battery longevity is a nut the industry is desperately trying to crack, but in the short term, it’s battery supply that is the problem.
Last year, Carlos Tavares, the chief executive of Stellantis, one of the world’s biggest car makers, warned of a looming crisis for the transition towards electric vehicles. In particular, he said, battery shortages could affect the industry as soon as 2025.
The three key materials required for the production of EV batteries are lithium, nickel and cobalt. However, Lacey says all these materials are in short supply and have witnessed a relentless surge in price over the last two years, albeit none as great as lithium.
“Lithium is the most sought-after, with its value having risen tenfold since the start of 2021. According to tradingeconomics.com, demand is vastly outstripping supply. We believe the world will need five times the supply of lithium by 2030,” says Lacey.
Part of the problem is that it takes about a decade for a new mine to come online, and Lacey says the world needs about 40 more lithium mines to meet demand in seven years’ time in 2030.
Locally, while South Africa lags behind its neighbours like Zimbabwe in terms of lithium reserves, Marula Mining plans to become the country’s largest premium lithium exporter from its Blesberg Project in the Northern Cape, and has already secured a $5-million contract. DM/BM