The Wall Street Journal reported Friday that electric-vehicle sales grew faster than gasoline-powered car sales. That should surprise no one. The competition is over. EVs are just better than gas-powered cars now.
Electric vehicles started out as a way to help save the planet. They were expensive, poor-performing vehicles with inferior range compared with vehicles equipped with an ordinary gas tank.
(ticker: 7201.Japan) Leaf, for instance, debuted in 2010. It cost, very roughly, $30,000, generated about 100 horsepower and could go about 100 miles on one charge. Back then, a 2010 Nissan Sentra, which was priced a third less than the Leaf, had more horsepower and could easily hit 200-plus miles on a tank of gas.
Car buyers would have been crazy—or crazy for the environment—for picking the Leaf.
Price per horsepower is one way to plot the progression of EVs versus gas-powered cars. One horsepower can be had for roughly $150 to $200 in a traditional car. The price hasn’t changed all that much over the past decade-plus. The price of horsepower in an EV, on the other hand, has dropped roughly 50%.
It’s an imperfect comparison. Other things determine a car’s price–including brand and other features–but the power of the engine is always a key factor.
With EV power costs falling, and performance improving, electric vehicles are setting records once held by gasoline-powered cars. A Model S Plaid Edition is the first production car to go from zero to 60 miles per hour in under 2 seconds. The Faraday Future FF 91 has won the Pike’s Peak race in Colorado.
It seems motor heads are destined to become battery heads.
For automotive investors, what the tipping point means is they have to become growth investors again.
(GM) stock, for instance, has traded for roughly 7 times estimated forward-year earnings for a decade, while the
S&P 500 index
traded at about 17 times over the same span. A big reason is the auto industry is mature and doesn’t grow.
Ten years ago, in 2011, GM sales amounted to about $150 billion. In 2021, sales are expected to be about $137 billion. That isn’t a recipe for big price/earnings ratios.
(TSLA) 10 years ago generated about $200 million in sales. In 2021, sales have a chance to reach $50 billion. Of course, Tesla stock will trade at some premium to the overall market.
Bull and bears, of course, will argue what the premium should be. For now, all that growth has made Tesla the most valuable car company in the world.
Write to Al Root at firstname.lastname@example.org