How Global Automakers Could Meet $2.5 Trillion In Funding Needs For 100% EV Transition

Electric vehicle adoption is set to accelerate in the years to come amid the quest to cut down on pollution. An analyst at BofA Securities detailed how the EV revolution that is taking shape could impact the industry dynamics and the funding needs.

Massive Funding Required: For EV adoption to improve in a big way, the largest hurdle will be funding the shift toward EVs, analyst John Murphy said in a note.

Total electrification of the global automotive industry would require over $2.5 trillion of investment over the next decade or so, the analyst said.

This estimate could prove conservative given a concurrent industry shift toward autonomy that also requires significant capital, he said.

Financing Sources: Most traditional automakers have been forced to fund their EV ventures through internal cash generation from core internal combustion businesses, Murphy said.

The analyst sees this trend as continuing.

External capital is readily made available only for new entrants with perceived unlimited addressable market and growth opportunities, he said. 

"One potential solution to the industry's EV capital conundrum would be government stimulus, with the proposed Green New Deal in the U.S. being a harbinger of possible support to come." 

Related Link: EVs Are Going Full Speed Ahead

Fundraising By SPACs To Grow: Only about $6 billion of the $2.5 trillion-plus funding needed is likely to be met through reverse merger and private investment in public equity by some EV SPACs, Murphy said.

With the proliferation of SPACs, external capital for at least some EV companies will increase, the analyst said. 

The EV SPAC boom and capital raised for newer EV companies will continue into 2021 and further, he said. 

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Incumbents Vs. New Entrants: BofA sees 2021 as the start of several important launch years for new EV models by incumbent OEMs.

The newer EV entrants have a key competitive advantage of gaining unfettered access to low-cost capital to fund product development, capacity installation and expansion and other business efforts, the firm said.

Photo courtesy of Tesla.