Henry Ford introduced the Model T to the world in 1908, transforming the world in the early 20th century. The assembly line produced car generated the power of 20 horses and enabled top speeds of about 45 miles per hour. 

This is paltry compared to the sheer power of today’s machines, but during the industrial revolution, it was game-changing. The newly accessible mode of auto transportation opened up a world of possibilities. Goods and services expanded beyond small geographic zones, and newfound personal freedom enabled expanded employment, education, and leisure opportunities. While it’s hard to imagine now, many people rarely ventured more than several miles from their homes before the automobile was affordable for the average family. 

The battle was on once it became clear that the car would be a staple of American life. Carmakers raced to build bigger, faster, and more powerful machines. The top metric was simple: horsepower. One number could quickly summarize the engine’s potential, and automakers went all-in to generate more muscle. Carmakers competed ferociously to hire the best engineers and dumped cash into research and development. They hurried to advertise their newest models to Americans around the country. As a result, the muscle car era captured America’s attention, and iconic cars like the Mustang, Camaro, Challenger, Corvette, and TransAm took over main streets across the country.

Fun Fact: James Watt coined the term horsepower when marketing his improved steam engine concept. Studying both smaller ponies and farm horses, he determined that one could carry 32,400 foot-pounds per minute, and with his business partner Matthew Boulton standardized the figure at 33,000 (https://www.popularmechanics.com/science/animals/a26074/horsepower-explainer)

Automakers are at it again, this time racing to win the electric vehicle war. But it isn’t a battle everyone was eager to join. The legacy automakers remained largely on the sidelines, calling the shift to EVs overblown and making half-hearted efforts to produce electric cars. At the same time, one brand, Tesla, was moving forward in their quest to make EVs mainstream, despite facing numerous cash crunches, production nightmares, and a barrage of doubters.

Before the Model 3, Tesla had three other models:

1. The Roadster:

   Tesla took an up-market to down-market approach, starting with the Roadster in 2008. It was the first highway-legal electric car that used lithium-ion battery cells. The Roadster was not a mass-produced vehicle; in fact, Tesla produced less than 2,500. They sold for around $100,000…not exactly affordable for most people (especially during and immediately after the great recession). But the Roadster put Tesla on the map by garnering media attention, celebrity endorsements, and a cult-like following.

2. The Model S:

   The Model S was a significant step forward in Tesla’s mission “to accelerate the world’s transition to sustainable energy.” Introduced in 2012, Tesla is still producing the Model S today, although a much-improved version. With a base price of almost $60,000, the Model S was still too pricey for the average car buyer, but it brought more consumers to the brand and was much more practical than the Roadster. The company grew its base of early adopters, and Tesla raised its brand recognition.
   Legacy automakers started to take notice. Ford and GM began to add more electric cars to the pipeline but hesitated to go all-in on electric vehicles. Former Ford CEO Mark Fields said, “My view is that yes, electrification is going to grow over the years, but it’s not going to grow to the extent all the experts are telling you.” This might be the reason he was shown the door. From the outside, it appeared Mr. Fields was slow to embrace electrification, even as it became more apparent that EVs would gain market share.

3. The Model X:

   Tesla’s first foray into the SUV & crossover space, the Model X is best known for its falcon-wing doors and incredible speed.

On June 16, 2021, GM announced it would increase its EV and AV (autonomous vehicle) spending through 2025 to $35 billion. That’s a whopping 75% increase from their previous commitment. In other words, game on! CEO Mary Barra said, “GM is targeting annual global EV sales of more than 1 million by 2025, and we are increasing our investment to scale faster because we see momentum building in the United States for electrification, along with customer demand for our product portfolio.” Some critics may argue GM is late to the party, but I say better late than never.

And let’s not forget about Ford. Marrying the past and future, Ford released the electric Mustang, much to the dismay of some traditionalists. Still, the reception was largely positive. The media made a big deal about the electric version outselling its gas-powered sibling in June 2021, but Ford was quick to point out that the anomaly was primarily due to the impact of the ongoing chip shortage affecting carmakers worldwide.

Producers in Europe in Asia are throwing their hats into the ring as well. The electric arms race is getting so hot that over 100 battery electric vehicle (BEV) models will be available to consumers by the end of 2024. That’s a far cry from the limited offerings of the mid-twenty-teens. 

It’s apparent that this new clash is shaping up to be more than a skirmish, it’s going to be a full-blown auto-war, and that’s great for consumers. Billions of dollars are being deployed to develop and produce electric vehicles, but where is the money being spent?

1. Battery and Fuel Cell Technology and Production:

   Energy storage is critical to the electric car revolution. Drivers expect to have sufficient range to reach their destinations, and if they have to stop to charge, they don’t want to be idle for long. You may have heard the term range anxiety. It refers to the fear that too little charge could leave you stranded. Technology must improve both energy density and battery life span to rid the world of range anxiety. It’s not just about making better batteries, though; it's also about producing enough. Tesla is manufacturing batteries at its Gigafactory in Nevada and building new factories as we speak. As a part of GM's massive spending announcement, they also unveiled plans for two new battery production plants. The world's battery companies like Panasonic and LG are stepping up to the plate, critically working to prevent battery storage as automakers ramp up EV production.

2. Additional Models:

   While choices have greatly expanded in recent years, there aren’t nearly enough options to support mass adoption. There will be a slew of brand new models hitting the streets and electric versions created from existing vehicles, but both will require engineering, design, and production resources (cash). According to Toyota, the average car needs a whopping 30,000 parts. It’s a massive undertaking to re-work and build factories to manufacture dozens of new models, each requiring thousands of parts, specialized tools, and expert assembly.

3. Charging Infrastructure:

   Somehow, this isn’t true, at least not yet. It would stand to reason that cars with batteries would need to be charged quickly, at convenient locations worldwide; Tesla seems to be the only auto manufacturer directly addressing this. Tesla’s website claims over 25,000 global superchargers, a significant advantage to their value proposition. One can argue that charging stations will be made obsolete by longer-lasting batteries or swap stations, but that doesn’t help you sell more cars today. I’ve used Tesla superchargers on numerous cross-country trips and can’t imagine owning an electric vehicle without viable charging infrastructure. Another argument is that other companies are focusing their efforts exclusively on charging stations. Companies like ChargePoint and Blink are building charging stations around the country and the world. However, I suspect the auto companies will soon join this front of the war, either organically or via acquisition.

This type of competition creates opportunities for investors. A number of automakers will thrive in the electric era, while others will falter, failing to capitalize on the changing paradigm. The list of now-defunct automakers is staggeringly long and will probably grow longer as a result of today’s business warfare. The GM and Ford of future generations will emerge (it may be Ford and GM), offering attractive investment returns for years to come. It’s important for investors to stay vigilant and act prudently as this competition plays out, but with a long-term horizon, sufficient due diligence, and diversification, investors can be rewarded by the macro shift from internal combustion engines (ICE) to electric vehicles. 

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from James Vermillion, and all rights are reserved.