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A man charging his electric car at Nissan’s global headquarters in Yokohama, Kanagawa prefecture.
Philip Fong/AFP via Getty Images
Electric vehicle makers, as a group, are worth more than traditional auto makers.
By about $100 billion. It’s an incredible feat for an industry that, measured by cars shipped, is actually still quite small. But the fact that batteries surpassed internal combustion engines makes perfect sense to an investor steeped in disruptive technology.
Vinod Khosla co-founded Sun Microsystems and now invests in exciting new tech through his firm Khosla Ventures. He was an early investor in businesses such as Google,
Square
(ticker: SQ) and Impossible Foods. Khosla Ventures is also invested in EV battery start up
QuantumScape
(QS). Khosla is a believer in electric vehicles as the future of personal transportation. “When you get to a few percent [market] share the future is settled,” he tells Barron’s.
The car industry is at that inflection point today. Battery electric vehicles represent roughly 1% of the total market for light vehicles. Including hybrid and plug in hybrids, the market share of electric vehicles rises to about 3%.
Khosla cites a number of examples that back his assertion. Take
Apple
(AAPL) and its entry into smartphones. Once Apple’s smartphones got a toe hold in 2007, the existing handset makers were, essentially, toast. That was despite the fact the original iPhone was expensive and had no keyboard. It’s a similar story with Khosla’s Sun and its competition with Digital Equipment Corporation back in the 1990s.
Why exactly it takes a relatively small market share to disrupt an industry is a bit of a mystery. One reason is that more investment capital flows in when market share hits 3% to 5%. More capital drives more innovation and improvement. Even more capital flows in as investors are lured by high growth rates.
Over the past year, EV makers have raised more than $20 billion in fresh capital. That is a fraction of what traditional auto companies spend on plants and equipment. On a per car basis, however, the EV industry is investing at roughly 10 times the rate of the traditional industry.
There is also the dilemma incumbents face. They don’t want to disrupt their own profit stream and, often times, leave the next big thing to start ups.
EV makers are now worth about $1.3 trillion. Traditional car makers have a combined market capitalization of about $1.2 trillion. That covers almost 100 auto makers around the globe with market caps ranging from $10 million all the way to
Tesla
(TSLA).
Tesla is worth about $1 trillion, based on its fully diluted share count. It’s necessary to use the diluted share count to make the math work. The difference between basic shares outstanding and diluted shares outstanding is, essentially, management stock options. Tesla has a lot of those because of how CEO Elon Musk gets paid. His options will become stock someday so investors should pay close attention to the fully diluted share count.
Even though Tesla makes up a lion’s share of the EV value, the overall total is still impressive. What’s more, three of the top five most valuable are EV makers.
NIO
(NIO) and
BYD
(1211.Hong Kong) are the other two with Tesla.
Volkswagen
(VOW.Germany) and
Toyota
(TM) are the most valuable traditional auto makers.
It’s big news for the EV industry, but this calculation will be harder to do in the future as traditional auto makers dive into EVs. They don’t want to be disrupted like some of the firms in Khosla’s examples.
Write to Al Root at allen.root@dowjones.com