I guess it all started with Microsoft.
Microsoft was the first software giant. Its huge business is based on little more than intellectual property… it proved that modern industrial behemoths can spring from practically nothing to world leaders if only they can create that elusive, ground-breaking technology.
And I guess Google did an even better job of it. Having developed a bit of coding that was able to find order in the sprawling web, the company began its push toward stardom. And as I’ve said on many occasions, I think we’ll be seeing an awful lot more of Google as it moves into practically every aspect of our lives.
The point is that these technology giants are set to dominate the early part of this century. These guys are led by visionaries, and their power comes from their intellectual property.
Earlier in the week we looked at how even the highly protected banking industry isn’t immune to the tech barbarians. Now, let’s look at how this will inevitably effect the world’s largest industry. That is the car industry. After all, it’s an industry dominated by a very few key players. But that’s all about to change…
China’s mega-punt on renewables
California-based Tesla is shaping up to be the tech company that really takes on the ruling cabal of carmakers. Right now, Tesla’s production of some 35,000 cars is but a mere bagatelle. But get this: this week, Tesla’s market cap spiralled to some $33bn. That ranks it somewhere between Nissan ($43bn) and Kia ($24bn)… both of which, incidentally are world class carmakers!
The stock market is clearly taking Tesla’s pioneering move into electric vehicles seriously. It just goes to show how the Californian tech businesses are encroaching on traditional industry and spoiling the party. As Detroit’s Motortown grinds to an agonisingly slow and painful death, so life springs into action in sunny California.
But of course, it’s not today’s sales – which, incidentally are mostly to rich Americans – that’s got Tesla’s stock racing to new highs. The latest rally is all to do with Tesla’s incredible growth projections. And probably the fact that it seems to have captured one key market: China.
While much of the West is hopelessly behind the curve on both renewable energy and electric vehicles, China most certainly is not.
China will not be held hostage to the West’s petro-dollar empire. They need look no further than Europe, and the impact of Russian aggression on key gas supplies, to realise how unhealthy matters can become. And let’s also bear in mind that it’s not as if energy is particularly cheap anymore.
China is boldly moving forwards with plans for a cleaner and more reliable future. It is already planning to practically double world solar energy production in the matter of two years.
And just this week, the Chinese government revealed a new $16bn plan to fund electric vehicle charging facilities. Transport pollution is quickly becoming a major killer as China’s rapid urbanisation plans take effect. Local governments have been told that 30% of their car pools need to run on alternative energy. The government has also exempted electric cars from purchase taxes.
About to crack China?
This week saw Tesla sign an agreement with Chinese mobile phone giant China United to build 400 charging points in 120 cities throughout China. The plan is to give users free electricity in as many places as possible. Though the business plan may sound a little kooky, it’s actually a plan that’s already working not only in the USA, but right here in the UK. Did you know that if you buy an electric car, you can fill it up at a growing number of stations throughout the country, for free? It’s been estimated that there’ll be some one million of these things in just the UK by 2020. If you’re considering buying a little run-around, then it may not be crazy to look into electric. Given the government’s £5,000 subsidy (set to disappear next year), you may find that there’s mileage in electric.
And Tesla chairman Elon Musk reckons that sales in China could match US sales as early as next year. Both of these markets are rapidly growing, so that’s no mean feat.
But this story is bigger than just Tesla. Nissan, Vauxhall, Renault, Ford, BMW, and more, all produce electric cars that you could buy tomorrow. And all of the remaining big manufacturers are set to have electric cars in the showrooms within the next year or two. Suddenly, no manufacturer can afford to be out of this market – and some are being forced to play a serious game of catch-up.
The way to play this
So how do we play this? Well, regular readers should be all too aware that my play on the rise of electric vehicles is through the lithium-ion battery market. With the cost of the battery packs making up a third of the price of these cars, it’s a market that we want exposure to.
I’ve already nailed my flag to the mast. Mexican lithium producer (listed here in London), Bacanora is sitting on an amazingly under-appreciated pile of lithium in northern Mexico. You can read more about my reasons for this particular producer here and here.
At the moment, we’re keenly awaiting news on talks between Bacanora and a potential partner for commercialising the monstrous lithium deposits they’ve found. Many of the large carmakers will be keen to establish a secure supply of this increasingly important metal.
As news breaks, I’ll be sure to update you. Until then, let us know your thoughts on electric cars. Can you see a million of the things on our streets within six years? Look out for them in your local showrooms… one thing’s for sure, change is afoot.