Autos The electric vehicle revolution is shifting into overdrive

With the race to capture the electric vehicle (EV) market accelerating, UBS Global Research has again engaged with UBS Evidence Lab for a third thought-leading EV teardown. This time around, we've taken the Volkswagen (VW) ID.3 and five other EV battery cells apart. Our key findings from the teardown include (1) batteries are still the main driver of cost reductions, and (2) software will be the next battleground and a significant revenue opportunity.

Batteries will be the short-term focus as costs need to continue to come down while supply (including of raw materials) looks increasingly tight. In light of the steep EV sales curve, battery procurement will become a key competitive flashpoint, and we expect greater earnings potential for cell makers long-term. 

Software (autonomous driving above all), has the potential to more than double the traditional auto revenue pool, in our view.

We think that consensus has moved to a scenario where EV pure-plays widen their tech lead over legacy players, while the EV penetration curve is very steep. However, the teardown has shown that leading legacy original equipment manufacturers (OEMs) and suppliers can fully participate in the EV space in a profitable manner.

We now forecast an EV share of 20% (of global new car sales) in 2025, and a 50% share in 2030 (46% BEV, 4% PHEV). The combination of (1) the technology/cost breakthrough, (2) rapidly increasing consumer choice of attractive EVs, and (3) a regulatory environment, clearly favours EVs over ICE cars. By 2040, we dare to say, 100% EV could already be a reality. Owning an ICE car will become a true luxury. Carmakers will stop investing in this technology, and "laggard" emerging markets with low car penetration will just leapfrog the ICE technology, like they did with phone landlines, in our view.