Horizon Scanning: The Race For Electric Vehicle Dominance

Electric vehicles, or EVs, have been on my mind since Will Ferrell and GM singled out Norway as the world’s largest EV market, and challenged American consumers to catch up, during this year’s Super Bowl. 

Technology advancements, changing consumer preferences, and increased government support for greener alternatives have propelled EVs, and their supply chain, to the mainstream. 

While the GM commercial was clearly in jest, it alludes to a very real, and accelerating, race to achieve a dominant position in the EV marketplace - and it’s a race with the potential to shape the trajectory of two of today’s top automotive producing countries. 

On one side of the Atlantic, Germany is the undisputed, current king of automotive engineering and excellence. On the opposite coast, we have the challenger, America, home to the world’s largest economy, Silicon Valley, Tesla, and the Detroit auto giants. 

As a German bank with a large presence in America, Deutsche Bank has a close view of the high-stakes race as it develops. We’ve recently explored the topic with my Americas colleagues and auto industry analysts Tim Rokossa and Emmanuel Rosner. You can listen to their thoughts on our new Horizon Scanning podcast, hosted by Dan Hunter, here. 

EVs have become much more popular in recent years, and the progress in several European countries is staggering. While American adoption remains in the low-single digits, German manufacturers have convenient access to European markets like Norway (50+ percent), Iceland (25+ percent) and Netherlands (15+ percent) who lead the world in EV adoption[1].

However, there are a number of key variables that will dictate the pace of this race, and could tilt it in favor of the Americans, in the coming years: 

• Consumer Acceptance: The first generation of EVs appealed to the typically well-heeled, but limited, climate-conscious consumer segment. Success in today’s market means marketing to the mainstream, and particularly the performance obsessed consumers. The success of Tesla, as well as rapid adoption of EVs in markets like Norway, are proof points that consumers are willing to switch from combustion vehicles when presented with a competitive alternative.
• Software: Leaning on a world-leading technology sector, the U.S. has a clear edge. Companies without easy access to the Silicon Valley talent and knowledge pool are forced to make a decision – either pursue partnerships or spend heavily to bolster internal expertise. German and European leaders have chosen to spend but external factors like the ongoing semiconductor shortage could lead to production slowdowns and jeopardize a return on their investment. 
• Government Policy: This is Europe and Germany’s biggest advantage, with generous incentives and a keen focus on reducing emissions. In America, President Biden’s proposed infrastructure package includes government investment in a national network of charging stations, and may include additional incentives that could narrow the gap, but it remains to be seen whether Congress will enact the proposal in its current form.

While the race between the U.S. and Germany makes for an exciting storyline, the reality is that any number of third-parties could potentially take the checkered flag. Incumbents on both sides of the Atlantic face increasing competition from startups, both domestically and in emerging auto-producing nations like China, who will try to win-over customers in a product-line where loyalties are nascent at best.

Regardless of where the market leader is based in 10 years’ time, the prize is worth the fight for incumbents and startups alike. Software-as-service, enabled by the underlying technology of EVs, offers automakers far more generous profit margins than traditional vehicles. This shift also provides a chance to develop the loyalty of younger drivers, who have shown an appetite for cars that are both green and cool.           

[1] The Global Electric Vehicle Market In 2021 – Virta