investment viewpoints
Asia is dominating the electric vehicle battery market
Car electrification is an unstoppable structural trend. We are past the inflection point of this revolution, often understood to be when a new technology reaches 5% of total industry sales.
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China is outperforming
In the first half of 2023, global EV penetration rate (EV sales as a percentage of total sales) reached 15%. So far, the outperformer is China, which is leading the world with its 32% EV penetration in the first half of 2023. The laggards are the US and Japan, which had significant ground to make up. Most developed countries have nevertheless set their EV penetration rate targets above 50% by 2030. With a roadmap of reaching their ambitious target by the end of this decade, the industry is almost certainly guaranteed to deliver strong growth.
In order to ride on this structural trend, the market is looking beyond EV brands, into its whole supply chain. Recently, EV battery cells have been in focus which makes sense, as it is the largest and most expensive component within an electric vehicle. In fact, car electrification is not even possible without a sharp increase in production from the battery industry.
The dynamics of the battery industry are less visible than those of the vehicle manufacturers, but it is equally complicated. Given the undoubted growth potential, many new companies have joined the race. While these new joiners have credible ideas for product development, those ideas may not be backed by sufficient financial support. The convertible bond asset class can work hand in hand with issuers to drive this revolution. Recently, we have seen several new issues from the EV battery space. This is likely to be just the beginning of their entry to the convertible bond market. We expect many more to come.
Like all new industries, growth comes with volatility. Not all players will survive this fierce survival of the fittest race. A sound understanding of the complicated industry landscape and different geopolitical considerations is important before engaging with the industry evolution.
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Car electrification is challenging the whole vehicle production supply chain. Our view is that battery cell production will end up becoming commoditised; at some point there will be market consolidation and not all manufacturers will come through this fierce survival-of-the-fittest competition.
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