Morgan Stanley
  • Wealth Management
  • Dec 20, 2022

Megatrends: Driving the Adoption of Electric Vehicles

Investors can gear up for a long-term shift in automotive trends, as electric vehicles are expected to account for 90% of auto sales by 2050.

James Ferraioli Investment Strategist, Wealth Management

New and legacy auto makers are investing heavily in electrification. Consumer demand for electric vehicles (EVs) is high, and governments continue to incentivize both production and ownership. As a result, EVs’ share of global auto sales is likely to grow from about 7% today to nearly 90% by 2050. But the widely anticipated transition to a global auto market dominated by EVs is likely still decades in the making, and there are potentially numerous opportunities for long-term investors to benefit along the way.   

EVs’ share of global auto sales is likely to grow from about 7% today to nearly 90% by 2050.
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What factors could propel this technology megatrend? And how can long-term investors benefit from the industry’s growth? 

What Is Driving EV Market Growth?

There are several factors driving the growth of EVs from both a supply and demand perspective.

  • Automakers are committing more capital. By the end of the decade, total capital expenditures for the EV industry could reach $108 billion.
  • Demand for EVs is strong. Although EV ownership is relatively low today, Morgan Stanley’s research shows that 29% of consumers are interested in purchasing an EV, and another 24% are interested in purchasing a hybrid vehicle. Those percentages will likely grow as EVs become more affordable.
  • EVs could reach price parity with gas-powered vehicles soon. At approximately $65,000,1 EVs are out of reach for many consumers today. However, continued performance improvements and reductions in the cost of batteries (which account for about 35% of an EV’s total cost), could lower the average EV price to $18,000 by 2025. That’s less than a comparable gas-powered vehicle.
  • Public policy has decisively shifted toward favoring decarbonization. In the U.S., 24 states and the District of Columbia have put in place some form of clean vehicle policies, including increasingly stringent emissions standards, as well as rebates and other incentives for zero-emission vehicles and related infrastructure.2 Globally, today, over 85% of car sales are subject to fuel economy and tailpipe CO2 emission standards.3

The result could be a steadily growing market share for EVs. In the U.S. alone, EVs are expected to become the predominant vehicle by 2045.

Electric Vehicles Could Account for Nearly 90% of the Market by 2050
Recent and Projected EV Share of Annual Global Auto Sales

Source: MS & Co Research, Morgan Stanley Wealth Management Global Investment Office as of June 4, 2020.

Potential Roadblocks to EV Mass Adoption

As this still-nascent industry grows, however, there could be speedbumps in the near to medium term.

  • Supply constraints: In the near term, a shortage of battery components, such as lithium, cobalt and graphite, could continue to delay production and keep EV costs elevated. Similarly, a COVID-era shortage of semiconductors has recently boosted EV costs, although there are signs that these supply issues are abating.
  • Insufficient infrastructure: By 2025 there will be 7 million EVs on the road in the U.S., representing 3% of total vehicles—and about 5 million charging ports will be needed to support them, up from about 120,000 today, requiring significant investments.4 In addition, increased EV use would place greater strain on the electrical grid and likely require utilities in the U.S. and Europe to invest hundreds of billions more in transmission and distribution.

How Can You Invest in the EV Megatrend?

A three-tier framework can serve as a roadmap for how to invest in vehicle electrification over time.  

The first tier is EV auto companies and battery manufacturers, the latter being one of the most vital suppliers to EV makers. As consumer adoption of EVs likely accelerates, these companies could be the most direct beneficiaries of increasing demand, with the battery market alone growing to $525 billion by 2040. Look for investment opportunities earlier in the industry’s growth, as production and demand ramp up.

The Electric Vehicle Battery Market Could Grow to $525 Billion by 2040
Recent and Projected Global EV Battery Total Addressable Market

Source: MS & Co Research, Morgan Stanley Wealth Management Global Investment Office as of Jan. 18, 2022.

The second is key suppliers for EV and battery makers, including semiconductor manufacturers, chemical and material processors, and metals and mining companies. Investment opportunities in these companies are also likely to be most plentiful early in the industry’s growth, as demand for their products continues to increase. In some cases, these suppliers may be a more attractive opportunity than pure-play EV manufacturers, because they often have a more diversified customer base and derive revenue from multiple industries.

The third: ancillary service providers, including software producers, power companies and tech firms targeting the auto industry to offer shared services. Given the relatively small market share of EVs today, investment opportunities related to such companies may seem minimal, but farther down the road, we expect these industries to expand meaningfully, with automobile-related technology services growing to a potential market as large as $10 trillion.

Companies exposed to the industry—particularly those focused on continued innovation—could be strong, long-term investments.

Connect with your Morgan Stanley Financial Advisor to learn how your portfolio might benefit from increasing investment in EVs, and find out more in our team’s AlphaCurrents report, “Electric Vehicle Roadmap to Mass Adoption,” which includes the Global Investment Office’s stock and fund recommendations for this theme.

Questions You Can Ask Your Morgan Stanley Financial Advisor:

  • How can I position my portfolio for a long-term shift toward electrification in the global auto industry?
  • How can I invest in the EV industry’s likely growth in ways that align with my long-term financial goals?   

1 “Electrified Vehicle Sales Hit Record, According to Kelley Bluebook,” PR Newswire, Oct. 2022. Retrieved from: https://www.prnewswire.com/news-releases/electrified-vehicle-sales-hit-record-according-to-kelley-blue-book-301653678.html

2 “State Climate Policy Maps,” c2es.org, Nov. 2022. https://www.c2es.org/content/state-climate-policy/#:~:text=At-a-glance,targets

3 “Policies to promote electric vehicle deployment,” iea.org, April 2021. https://www.iea.org/reports/global-ev-outlook-2021/policies-to-promote-electric-vehicle-deployment

4 “Expect more EV Charging Stations as States Tap into Federal Dollars,” pewtrusts.org, Oct. 2022. https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2022/10/11/expect-more-ev-charging-stations-as-states-tap-into-federal-dollars#:~:text=Currently%2C%20there%20are%20nearly%2047%2C000 ,companies%20that%20make%20charging%20networks.

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The speakers may not be affiliates of Morgan Stanley Wealth Management. Opinions expressed by speakers not affiliated with Morgan Stanley Wealth Management are solely their own and may not necessarily reflect those of Morgan Stanley Wealth Management or its affiliates.

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·                     Investors should be aware of the potentially increased risks of transacting in digital assets, including Bitcoin, relating to the risks and considerations, including fraud, theft, and lack of legitimacy, and other aspects and qualities of digital assets, before transacting in such assets.

·                     The exchange rate of Bitcoin or other virtual currency products versus the USD historically has been very volatile and the exchange rate could drastically decline. For example, the exchange rate of Bitcoin versus the USD has in the past dropped more than 50% in a single day. Bitcoin may be affected by such volatility as well.

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