By Rick Bradt
As thematic investors attentive to long-term structural business trends, we are regularly tasked with assessing the long-term prospects – and sustainability – of innovative companies and the industries they seek to disrupt.
On the other side markets as diverse as streaming media and smartphones, from electric cars to electric shavers, from online retailers to online real estate agents, and more, innovative new entrants to the industry can emerge as share leaders market, replacing well-established incumbents as industries change. However, there is a significant gap between gaining market share (a laudable goal) and gaining the lion’s share (the largest or dominant share), with implications for investors looking for the successful companies of tomorrow.
Today, nowhere is this battle for market share (and lion’s share) more apparent than in the growing electric vehicle market. Here, virtually an entire industry is dominated by 10 major automotive incumbents focused on internal combustion engine (ICE) vehicles. In total, these incumbents generate approximately $1.5 trillion in annual sales, representing more than 65 million cars sold each year. In comparison, sales of electric vehicles (including hybrids) have recently reached about 10% of this annual volume, or about 6.5 million units. As part of this, the largest manufacturer of individual electronic vehicles (EVs) delivered nearly one million vehicles to new EV owners in 2021 – a milestone for the industry, not least for a young company.
Annual unit sales and corresponding revenue, however, only tell part of the story: today, these same 10 incumbents have a market capitalization of approximately $1 trillion. It’s roughly the same market capitalization as the largest pure-play EV maker.
As with comparable market share battles between stubborn innovators and well-established incumbents, several questions arise to help handicap the possible long-term outcome of the current battle in the electric vehicle market:
Can today’s innovative electric vehicle manufacturers continue to outpace the technical and manufacturing successes of incumbent automotive operators 10 times their age and size?
As previously asked of innovators in markets as diverse as streaming media and semiconductors, can early EV leaders expand their initial offerings to achieve the scale and breadth of products typical of long-term leaders? market share term?
Can the incumbents of the ICE industry prove themselves sufficiently adept at reinventing themselves to ensure that they – and not their competitors – dominate the electric vehicle market of the future?
The future will likely determine how the current EV battle plays out and whether, as has often proven true in other industries, the innovative newcomer can overtake market share and carve out the lion’s share.
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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.