Biden era holds big promise for future of electric vehicles

The last time Joe Biden was sworn into the White House in early 2013, Tesla Inc. was an upstart electric vehicle maker few believed could seriously threaten the dominance of the traditional auto giants.

As Biden prepares to swear in as president this month, the company's valuation stands at more than five times the value of Ford Motor Co., General Motors and Fiat Chrysler Automobiles combined.

The stunning rise in Tesla's fortunes in less than a decade is a crucial point of context in understanding what the industry and consumers can expect under the former vice president.

There's no doubt now that the technology works, that the consumer demand exists and that the world is moving rapidly toward an EV future. These trends suggest there'll be relatively little resistance to Biden's plans to accelerate America's transition away from gasoline vehicles and return to Obama-era climate and fuel-efficiency standards.

As the incoming administration's policies unfold, U.S. automakers and suppliers will benefit from much-needed clarity around how to invest and prepare for the transition to EVs. After lagging Europe and Asia in recent years, the U.S. auto industry will get another chance to become a world leader in electric technology. This will mean big opportunities for investors while creating intense pressure for suppliers and automakers to adapt to new production models.

Biden has indicated that changes are likely to come thick and fast under his administration.

As the son of a dealership manager, Biden has long ties back to the automotive industry and consumer experience. And — although it is somewhat controversial among automakers — he has committed to rejoining the Paris climate accord, which will require the industry and Washington to recommit to stronger emissions-reduction targets. He also is expected to make extensive use of executive orders to impose stricter environmental standards and to push policies that encourage the uptake of electric vehicles. For starters, those measures could include toughening fuel-economy requirements, expanding tax credits for EV purchases and transitioning the public vehicle fleet to electric from gasoline. His plans have called for installing 500,000 vehicle-charging stations, up from only 27,000 currently.

The U.S. auto industry as a whole is much better prepared today to adapt to this shift. When the Obama administration finalized in 2012 its agreement with big automakers on new fuel-economy standards, it received a mixed reception within the broader industry. While welcoming the clarity, initial optimism frayed as the major technical challenges of achieving the 54.5 mpg standards with internal combustion engines by 2025 became clearer.

This time around, technological barriers have largely been surmounted and there's industry consensus that the global momentum toward a low-emission, electric future is inevitable.

GM alone plans to introduce 30 new electric models globally by 2025, having announced in November a $7 billion expansion of its EV investment plan.

The big challenge for the industry now will be figuring out how to transition to new models while so much capital is still tied up in old technologies. Automaker and supplier factories will look radically different by 2030, reflecting the reality that EVs need vastly different and fewer parts than current vehicles.

Suppliers will have to perform a balancing act to channel capital, strategic energy and talent into areas that won't necessarily be making money straight away. The pressure on today's midmarket suppliers will only increase, and many either won't exist or will be transformed dramatically in 10 years' time.

Legacy suppliers face the challenge of how to find and integrate new technology without incurring huge expenses — or crushing the innovation they have in process. In contrast, newer tech players will have to find ways to scale up production and be competitive at automotive volumes, without running into quality problems, an ongoing obstacle for newcomers to the industry. Innovative operational strategies will be needed to focus not just on how to deploy their technologies, but also on how to develop their market position to sell these new components.

This need for rapid industry evolution is igniting the drive toward surging merger and acquisition activity.

While some suppliers have gotten ahead of the curve on technology, many players will have to go out and buy the tech they need to adapt and survive.

Industry transformation is driving plenty of investment activity and opportunity, a trend likely to accelerate during the Biden administration. Big pension funds and other institutional investors that need to meet environmental, social and governance requirements in their portfolios are increasingly funneling money into innovative auto companies, sparking an explosion in special purpose acquisition companies in the electric vehicle space.

The message for companies in the industry is that if you can check the environmental and sustainability boxes, there's investment money out there for you to access.

Perhaps for the first time, the auto industry, investors, the federal government and consumers are coming into alignment on the way forward. That represents a big opportunity in the coming years for companies that can visualize their place in that future.