Lamborghini is the latest super car to announce its pivot into the EV space. It's setting the stage for its 2024 electric car offering. What does this mean for Volkswagen, and the luxury EV space?
- Lamborghini is looking to invest $1.83B to make a full switch to electric by the end of the decade;
- Italian sports cars are being pressured into going green (Ferrari, too) in order to fit in with Brussel's EU climate change targets;
- Volkswagen is making a push for all its holding companies to go electric--a move to usurp Toyota leadership?;
- The EV market is growing rapidly, and ESG benefits from a long term investment thesis rationalizes decisions to attack the market more aggressively.
Lamborghini going electric
Fully electric Lamborghinis are on the horizon. The Italian automaker unveiled plans to go electric but will proceed in two distinct phases over the next decade. We will however have to wait until the end of 2024 for the company to roll out its first electric hybrid model. After this phase, the car maker intends on building a fully electric version, something which could take until the end of the decade to realize. Famous models Aventador, Huracan, and Urus should first be produced as plug-in hybrids and hit the markets in the next three years.
But the luxury sports car maker has been timid to enter the electric phase out of fear to ostracize its loyal customer base--customers who crave sensation in the form of loud V8 and V12 motors, and break-neck accelerations. However, everyone knows now that torque and acceleration is off the charts when it comes to electric motors.
Lamborghini is looking to invest $1.83B to make the switch to electric, and will be doing so off the back of one of its best quarters where revenues grew 5.4% to €509 million (a 25% surge from a year ago). While 2020 showed record profits, the company seems keen to keep working towards evolution hence the EV move. Other sources indicate that this move is a response to pressure from the EU and Brussel mandates regarding climate change, a message rival Ferrari will eventually have to answer, too.
What does it mean for Volkswagen
Volkswagen owns Lamborghini. It is the largest automobile group after Toyota by sales, but perhaps not for much longer. Volkswagen pushing its key brands to go electric could be a strategic move to usurp the power Toyota currently holds over the car market. Furthermore, it is a way for Volkswagen to stay nimble in what is a growing environmentally-oriented investment climate. Going full electric across the board clearly makes for a more competitive investment rationale considering ESG criteria, at least in the long run.
Volkswagen has also gone as far as proposing a public listing of the luxury car maker, but such plans have failed as key stakeholders voted against the idea. The goal is for Lamborghini to exist as a trailblazer in the luxury EV market, and to do so in such a way that would not cannibalize other brand sales will be key in the coming years. Other Volkswagen brands like Bentley have already proposed plans to retire its 12 cylinder engines by 2026 and Bugatti could also see the same fate, though rumors seem to be first focused on Bugatti's joint venture move with Croatian supercar maker Rimac.
EV market ambitions
Lamborghini is not the only luxury carmaker to push for an all electric future. Jaguar Land Rover, a british company owned by India's Tata Motors, has stated that Jaguar cars would be fully electric by 2025 and that it would drop its petrol dependence altogether.
This strategic move away from petrol could be a way for management to mitigate risk related to oil markets, especially with regards to rising prices. Mainly though, soaring demand coming from Millenials and Gen Z, a generation beginning its ascent into the economy's upper echelons, is a good enough reason to make the switch to EV. Product-market fit is key.
Ford has also positioned itself in the EV direction with plans to sell only electric cars in Europe by 2030, a commitment that has seen Ford invest $1B in converting a vehicle assembly plant in Cologne.
The race to be number one is in the making, with an EV market about to go full throttle everywhere in the world...
Governments play a big role in this EV evolution. The US government grants tax credits to those who own hybrid and electric vehicles like Tesla models (talk about an incentive).
Around the world, major economies have set the deadline for 2030, a deadline that should see cars from this point on only being produced in electric form. Our apologies to the gas lovers out there. Speaking of gas however, Norway --who is heavily dependent on gas and oil revenues-- hopes to become the world's leading nation in EV adoption with a ambitious deadline of... 2025. In Norway, 60% of monthly vehicle sales are for EVs.
The EV market
Just a short reminder that the EV space is no joke--it's a major trend with real numbers beginning to attract the attention of a lot of high profile investors. As of 2019, EV commanded a $140B market, and expects $700B-$800B by 2026... This is one of the reasons behind the massive Tesla valuation, in that forward looking growth has justified large cash flows thus high earnings multiples.
This further implies a growing demand in other markets. Lithium batteries, as illustrated in the graphic below, would see companies like Albemarle under the spotlight (but this is not to say they will necessarily see share prices rise just because Lithium demand rises) and also, car insurance companies, think specialized fintech groups like Metromile.