Published on June 3, 2021

After idling for decades, electric vehicles (EVs) are finally ready to charge ahead. Changes in the regulatory landscape, decreasing costs, and a substantially wider range of buying options have transformed the industry and created a powerful secular growth trend. One little known electronics supplier, Aptiv PLC, is particularly well-positioned to take advantage of the opportunity.

Believe it or not, at the start of the 1900s, 38% of cars in the U.S. were electric. Their heyday was short lived, however, as gas-powered vehicles proved to be more practical – they were cheaper, easier to refuel, and traveled farther.

These same three issues (price, charging, range) have dogged the EV industry ever since, but thanks to a confluence of structural economic changes, and the rapid embrace of Tesla by consumers, electric cars finally appear poised to make their long-awaited resurgence.

EV History: The Chicken or the Egg?

To understand the challenges facing the EV industry, it is helpful to consider the chicken and egg problem. Anytime a disruptive new product enters an established market, manufacturers are hesitant to mass produce the item as they are unsure of demand. With limited supply, sales are muted, which reinforces the status quo.

Electric vehicles are a textbook example of this phenomenon, particularly because they also require an extensive infrastructure investment (i.e., charging stations). Historically the EV industry has grappled with multiple challenges that have slowed its evolution:

  • Auto manufacturers have been hesitant to ramp up production due to uncertain demand. And that hesitancy has been warranted, as consumers have been slow to adopt EVs due to concerns about limited range and lack of charging stations.
  • EVs are expensive, which has restricted the market opportunity to high-end buyers. Batteries are the most costly components of EVs, but without sufficient revenues to fund research, battery costs have declined slowly.

Given the circularity of these issues, it is not hard to see why EV penetration was slow to take off. Progress was made in fits and starts, including the GM EV1 in the late 90s and the Nissan Leaf in 2011, but it has only been within the past few years that EVs have experienced any sustained momentum.

The Future: A Secular Growth Trend Built for the Long Run

In contrast to the early days, most analysts believe that EVs have hit an inflection point, and expectations for the industry are higher than ever. We share this view and believe EVs are poised to become a major secular growth trend, similar in scale to mobile phones or the internet. Like those other innovations, EVs are a fundamental paradigm shift that we expect both consumers and businesses to embrace for years to come.

In our view, there are four primary drivers that are creating the secular tailwinds for EVs:

  • Government intervention
  • Falling battery prices
  • Increased commitment from auto companies
  • Customer preferences

The climate crisis was the catalyst that changed the trajectory of the industry, but going forward we believe each of the above trends will contribute to a powerful flywheel effect that should sustain growth of EVs for the foreseeable future.

Governments Are Driving EV Demand

Probably the single biggest change in the EV landscape in the past few years has been the increased role of governments around the world. Motivated by a desire to reduce fossil fuel consumption, regulators have used a combination of carrots and sticks for both car companies and consumers to increase the quantity of EVs that are manufactured, sold, and purchased.

In 2009 the EU began to pass regulations aimed at reducing CO2 emissions. One of the most meaningful was a 2014 law that mandated CO2 emissions of new vehicles had to be below 95 g/km by 2021. Practically speaking, this meant that auto companies had to start thinking about developing more hybrids and electric vehicles if they wanted to meet these targets. Non-compliance was technically “legal,” but the fines were so high that it was not economically feasible.

At the same time, many EU nations have been providing meaningful financial incentives to consumers who buy EVs. Sensing an opportunity to stimulate the economy and push green initiatives, Germany increased its subsidies to as much as 9,000 EUR per car, which lowered prices without reducing manufacturers’ revenues. For example, the Renault Zoe can be purchased for less than 20,000 EUR or leased for as low as 39 EUR/month! These factors led the Zoe to be the best selling EV in Europe in 2020.

China, home of the world’s largest EV market, has taken a similar approach to the EU to boost EV adoption. The government has relied on tools such as subsidies, tax exemptions, and faster access to license plate registrations for consumers, while also levying increasingly stringent CO2 emissions standards. EVs made up nearly 6% of China’s car sales in 2020, and the Chinese government is aiming to increase that share to 20% by 2025 and 40% by 2030.

In the U.S., governmental initiatives to push EV adoption lagged behind Europe and Asia during the Trump administration, but that mindset has shifted dramatically under President Biden, who has prioritized EV and clean energy in his agenda. President Biden’s proposed infrastructure plan includes $174 billion to encourage adoption and production of EVs, $45 billion to help governmental agencies procure EVs for their fleets, and $15 billion to build a national network of 500,000 charging stations. It is yet to be seen whether these plans will be enacted by Congress, but no more steps backward on EV adoption are expected during Biden’s tenure.

As if these initiatives aren’t enough, governments throughout the world are establishing hard dates for when they are banning internal combustion engine (ICE) vehicles. California won’t allow sales of ICE vehicles starting in 2035. The U.K. has moved up its ban from 2035 to 2030, which aligns with Iceland, Netherlands, and Sweden. Norway, the current leader in EV sales, plans to eliminate ICE vehicle sales by 2025!

Battery Costs Are Falling

In the early 2010s, it wasn’t even feasible to make a car that could reach 300 miles on a single charge – a milestone that was particularly important to Americans but also of interest in international markets. Enter the Tesla Model S 90D in 2016, the first EV to surpass 300 miles in range. It also cost nearly $90,000, so it was far too expensive for most households to afford.

The target price to achieve mainstream adoption is much lower – each of the top 10 selling cars in the U.S. has a starting price below $30,000. For EVs to truly compete with ICE vehicles, they have to reach that price point, and the best way to accomplish that is to produce cheaper batteries, which is exactly what has played out.

Thanks to improvements in efficiency, cheaper raw materials, and manufacturing techniques, there have been meaningful declines in battery prices over the past several years.


This is significant because batteries make up 20-30% of the price of an electric vehicle. 5 years ago, the battery on a 300 mile-range car cost about $22,000. By 2023, a 300 mile-range battery should cost about $7,500, which would allow car makers to produce an electric vehicle priced below the magical $30,000 price point! In the meantime, government subsidies help bridge the gap to bring the price of EVs roughly level with their ICE counterparts.

Car Manufacturers Are Going All In

Bolstered by governmental intervention, technological improvements, and the effect that Tesla has had on the industry, car manufacturers are recognizing they need to go all-in on electric vehicles. They realize that EVs are the future of the industry and cannot hold onto the hope that traditional vehicles come back into vogue.

As seen below, car companies are making significant pledges towards an electric future.

These aren’t simply PR moves. These companies are rapidly shifting their capital expenditures (capex) and R&D spend towards developing EVs while running their legacy ICE businesses for cash. GM has committed to spending $27 billion on EV development through 2025 – more than 70% of their capex over the previous 5 years. Ford announced in May that they would commit $30 billion of EV spend through 2025 – more than their total capex spend over the last 4 years. These companies are accelerating their push into EVs because they know it is critical to their growth.

As part of this transformation, auto manufacturers have finally started to release a wider selection of models priced for the mainstream. Gone are the days of just the Nissan Leaf and the Tesla Model S. Notable launches in 2021 include Volkswagen’s ID.4, Ford’s Mach-E, and Hyundai’s Ioniq 5 – all are part of the ever-popular compact SUV category, and all priced competitively vs. similar ICE models. (The ID.4 can be purchased for under $30,000 after Federal, California, and local tax incentives!)

This trend is just beginning, and car companies are expected to release nearly 50 new models in 2021. The more EV models are introduced, the more likely that a given consumer will be able to find an EV that fits their needs.

Customers Prefer Electric Vehicles

Even in a year where total auto sales were down 16% due to Covid, EV sales managed to grow 43% in 2020. Market share is still small – only 4% of all vehicles sold – but in our view that percentage will change markedly over the next few years.


As the industry continues to mature and customers can easily choose between similarly priced EVs and ICE models, we are confident that an increasing percentage of buyers will select EVs because of their many inherent advantages. In addition to reduced carbon emissions, EVs cost much less to charge than an equivalent tank of gas. Furthermore, EVs have significantly fewer moving parts (20 in an EV engine vs 2,000+ in an ICE vehicle) make them cheaper to operate day-to-day and maintain over the years.

With EVs becoming more affordable and accessible, we believe uptake is a long-term inevitability. They run quieter and cleaner, and they are cheaper and easier to maintain. What’s not to like? In addition, EVs have an intangible “cool” factor that we expect will motivate younger buyers. And although the automotive industry is cyclical, electric vehicles provide a secular trend with a long growth runway ahead.

Based on our analysis, we anticipate that by 2025 EVs will comprise as much as 15-20% of all car sales. This would translate to 17 million electric vehicles sold, or 5.5x 2020 levels.

Case Study: Aptiv PLC

While many investors focus on buzzworthy car companies like Tesla, we think a better way to get exposure to the secular growth of the EV industry is Aptiv PLC. Although they are leaders in their space, they are not well known because they build components that drivers rarely see - wires, connectors, and advanced safety sensors that reside under a car’s floorboard. In fact, they deliberately keep a low profile so car companies can claim the credit for delivering state-of-the-art vehicles. But Aptiv provides the critical components that make those possible.

Aptiv counts most of the leading global car makers as customers, such as GM, Volkswagen, Ford, Daimler, and Tesla. As such, an investment in Aptiv doesn’t hinge on a single car company’s success in developing EVs but rather provides exposure to the broader EV industry.

The company enjoys outsized benefits from the growth of EVs in two key ways. First, the average revenue earned per vehicle for EVs is as much as 3x that of traditional ICE vehicles. Second, Aptiv’s early mover status and their technological lead has allowed them to achieve a 70% win rate on electric vehicles (versus their 30% historical market share on ICE vehicles).

Once Aptiv secures a contract, they are typically locked in for the duration of a vehicle platform’s 5-7 year lifecycle. The company works very closely with car manufacturers from development to production as an integral part of the supply chain. This makes their technology very sticky (i.e., high switching costs), which leads to long-term relationships and predictable revenues.

In addition to their robust EV business, Aptiv is also a leading supplier of components for automated driver safety features, such as auto-braking and lane assistance. Like their EV components, these so-called advanced driver assistance systems (ADAS) provide Aptiv with approximately 2-3x the revenue earned per vehicle vs. cars without ADAS. Importantly, the number of vehicles with these next gen safety features is projected to double over the next 5 years.

Exposure to EVs and ADAS make up just over 15% of total revenues, but the company projects that those two business lines will drive more than half of its growth over the next 5 years. Combining those company-specific factors with the broader secular growth of EVs and ADAS, plus the cyclical recovery in automotive sales post-Covid, we are expecting a very favorable multiplier effect on sales for the next several years.

Final Thoughts

The growth of electric vehicles is an important secular trend that we believe will continue for many years. The transition away from our current gasoline-based transportation infrastructure will be a complex process, and it is already spawning a new generation of companies built for an EV-world.

We will be watching the space carefully, not only because we expect other attractive investment opportunities to present themselves, but also because we prefer to invest in companies that have a modest impact on the environment. We believe in ESG investing, and the EV industry is well aligned with those principles.

Larry Cordisco

Co-Chief Investment Officer – Core Equity & Portfolio Manager

Written by

Larry Cordisco

Co-Chief Investment Officer – Core Equity & Portfolio Manager

Larry Cordisco

Co-Chief Investment Officer – Core Equity & Portfolio Manager

Before joining Osterweis in 2019, Larry Cordisco was a Co-Portfolio Manager of the Meridian Contrarian Fund at ArrowMark Partners/Meridian Funds. Prior to co-managing the Contrarian Fund, Mr. Cordisco was an equity analyst for 11 years, most recently as Vice President of Investment Research for the Meridian Contrarian Fund. Before that he was an analyst within the technology group at Bank of America Securities. He was also a business and technology consultant for Accenture in San Francisco and began his professional career in the public sector as local staff for a member of Congress.

Mr. Cordisco is a principal of the firm and a co-lead Portfolio Manager for the core equity, growth & income, and flexible balanced strategies.

Mr. Cordisco graduated from the University of California, Santa Barbara (B.A. in Political Science), Georgetown University (M.P.P.), and Columbia Business School (M.B.A.).

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