The automotive industry is undergoing a seismic shift, with electric vehicles (EVs) taking centre stage as manufacturers pivot to meet evolving consumer preferences and stringent regulatory requirements. British automaker Jaguar Land Rover (JLR) has made a bold move by announcing a significant shift in its lineup, eliminating all but one internal combustion engine (ICE) model as it transitions to becoming an electric vehicle-only company. In contrast, Toyota, Subaru, and Mazda are pursuing a diversified approach, keeping ICE engines in play with innovations in eco-friendly technology. These divergent strategies underscore the ongoing debate of electric vehicles vs. ICE and their respective impacts on valuations.
Jaguar Land Rover’s Bold Electric Vision
Jaguar Land Rover’s recent announcement to phase out nearly all its ICE models, leaving the Jaguar F-Pace SUV as the sole remaining ICE vehicle, marks a pivotal moment in its history. This transition aligns with Jaguar’s strategy to become an electric-only brand, with six new electric models slated for launch over the next three years.
This decisive shift towards electrification is driven by the burgeoning EV market and regulatory pressures to reduce carbon emissions. While there may be short-term transition costs and potential supply chain challenges, JLR’s move positions it for growth in the expanding EV market. This strategic pivot is likely to drive up future valuations, reflecting the company’s commitment to meeting consumer demand for greener vehicles and adhering to stricter environmental regulations.
Toyota, Subaru, and Mazda’s Multi-pathway Strategy
In stark contrast, Toyota, Subaru, and Mazda are taking a more diversified approach to the future of automotive powertrains. While they recognise the growing importance of electric vehicles, they are also committed to enhancing ICE technology to meet emissions regulations and consumer demand. Toyota recently unveiled a new generation of eco-friendly engines designed for hybrids and plug-in cars, running on biofuels and hydrogen. This approach is part of their ‘multi-pathway’ strategy, which involves developing EVs whilst also focusing on hybrids, hydrogen fuel cells, and biofuels.
Toyota projects that 80% of vehicles sold by 2040 will be powered by hydrogen, highlighting their belief in the long-term viability of alternative fuel sources. The collaboration with Subaru and Mazda aims to provide diverse options for achieving carbon neutrality, enhancing engine performance, and improving aerodynamics through smaller, more efficient engine designs.
Electrification of Commercial Fleets
Businesses managing fleets of vans and heavy goods vehicles (HGVs) face unique challenges compared to passenger cars. Higher power requirements and longer charging durations are significant factors that fleet managers must contend with. The UK, for instance, has over 615,000 trucks and 4.8 million vans on the road. Despite representing only 1% of all vehicles on Britain’s roads, HGVs are responsible for 20% of the UK’s transport emissions, roughly equivalent to all UK air travel, buses, and shipping combined.
Therefore, the commercial and heavy goods sector is making strides towards electrification. The electric HGV market in the EU nearly tripled in 2021. In 2022, nearly 66,000 electric buses and 60,000 medium- and heavy-duty trucks were sold globally, representing about 4.5% of all bus sales and 1.2% of truck sales. By 2035, it is predicted that the majority of new trucks sold in China, the European Union, and the United States will be electric. SMMT data shows that in the UK, the battery electric vehicle (BEV) share of the light commercial vehicle (LCV) market is expected to rise to 10.1% in 2024 and 14.1% in 2025.
While many environmentally conscious organisations are beginning the transition to BEV commercial vehicles, manufacturers too are bringing new electric models to market. These include the Volta Zero purpose-built 16-tonne electric truck and the Volvo FH Electric, which has a range of 300 km, extendable to 500 km with a top-up during breaks.
Electric Vehicles vs. ICE Impact on Valuations
The shift towards electrification in commercial fleets also significantly impacts valuations. The transition to electric vans and HGVs, despite challenges, represents a crucial step towards reducing transport emissions and achieving sustainability goals. The ongoing advancements and strategic investments in EV technology will undoubtedly shape the future landscape of both passenger and commercial vehicles, influencing market dynamics and valuations in profound ways.
JLR’s commitment to becoming an electric-only brand, combined with the broader move towards electric commercial fleets, positions it for growth in the EV market. This strategy reflects a forward-looking approach aligned with regulatory and consumer trends, potentially driving significant increases in its market valuation. Conversely, Toyota’s multipathway approach offers a balanced view, investing in both electric and alternative fuel technologies to cater to diverse market needs. This diversified strategy can stabilise their market valuations by mitigating the risks associated with a single technological bet.
Depreciation Trends in EVs vs. ICE
Historically, EVs tended to depreciate much faster than petrol cars, mostly due to concerns over battery life and technology obsolescence. However, the gap is narrowing. According to data from AutoTrader, EV depreciation within the first 12 months is higher than for petrol or diesel cars. After this point, the rate of depreciation slows significantly, matching that of ICE cars over time.
Certain factors impact how well an EV holds its value:
- Brand and Model: Some brands and models are known for quality and durability, increasing demand and resale value.
- Mileage: Higher mileage typically leads to a lower resale value due to increased wear and tear.
- Condition: Good or excellent condition attracts higher resale value.
- Battery Health: The health and remaining capacity of the battery are crucial for depreciation.
- Modifications: While less common, some modifications can impact resale value depending on the market.
- Number of Owners: Fewer previous owners generally mean higher value.
- Service History: A well-documented service history without gaps provides reassurance of maintenance.
Conclusion
The electric vehicles vs. ICE debate is shaping the future of the automotive industry, with significant implications for valuations. As business strategies unfold, their impact on market valuations will serve as a barometer for the broader industry’s direction in achieving carbon neutrality and meeting evolving consumer demands.
In the realm of commercial fleets, the push towards electrification is evident and growing. The transition to electric vans and HGVs, despite challenges, represents a crucial step towards reducing transport emissions and achieving sustainability goals. The ongoing advancements and strategic investments in EV technology will undoubtedly shape the future landscape of both passenger and commercial vehicles, influencing market dynamics and valuations in profound ways.
Interested in how Electric Vehicle vs. ICE strategies could impact the valuation of your transport asset? Get in touch with our industry experts Tim Howard and James Fox.
