Reducing the cost of batteries to generate revenue will be the next battleground for major electric vehicle (EV) manufacturers around the world and software could help achieve that, analysts at a major European bank have predicted.

Batteries: short-term battleground

Batteries power electric cars. While some automakers make batteries, others rely on suppliers. “Whether or not to produce batteries is a question for many automakers. In fact, it depends on the most efficient part for growing your business.,“said Paul Gong, head of the Chinese automotive industry team at UBS. He added that automakers should engage in the production process in which they are most efficient.

Batteries will be the target in the short term as costs must continue to fall as the supply (including raw materials) seems increasingly tight.

Given the steep sales curve for electric vehicles, battery purchasing will become a key competitive flashpoint, and UBS expects greater revenue potential for battery makers over the long term.

LG Chem, CATL in China and Tesla are some of the major battery manufacturers in the world. China’s BYD launched its blade batteries in 2020, while Tesla is expected to introduce its next-generation 4680 spindle battery cells in 2021.

According to the latest tweets from May 18, Elon Musk has confirmed that Gigatexas will start producing a 4680 battery cell for its Model Y later this year. This means Tesla will have 4,680 on a reasonable scale and the car will be ready in 2021.

Software: long-term battleground

“Software could be a game-changer for the industry,” said Gong.

All of the world’s major original equipment manufacturers (OEMs), including Ford, General Motors and Volkswagen, have ramped up their investments in software or digitization, but it remains to be seen whether their strategies will be successful.

Tech companies and pure-play EVs are potentially better placed to be the main innovators (organization, culture, access to capital and talent). But the size of the fleet is an important asset for achieving scale effects and improving algorithms, which works in favor of the largest OEMs.

This will be an important point of proof if a legacy OEM can compete with an internal software stack. In autonomous driving, the largest software-related revenue pool, GM Cruise remains the most advanced OEM.

More and more tech giants are entering the electric vehicle markets. Last January, Chinese internet giant Baidu partnered with the country’s largest private carmaker, Geely, to produce electric vehicles.

In April, Chinese tech company Xiaomi also announced plans to produce its own electric cars. “Xiaomi’s first electric car will be an SUV (sport utility vehicle) or sedan, priced between $ 15,000 and $ 45,000,” Xiaomi founder Lei Jun recently announced. These companies are believed to have more advantages when it comes to designing and updating software.

The above data is from the latest UBS cost report breakdown of a VW electric car. UBS is more confident than ever in a steep electric vehicle penetration curve: 20% market share by 2025, 50% by 2030, with a 100% chance by 2040.

The situation is different in software (autonomous driving above all), which has the potential to more than double the traditional automotive revenue pool, raising operating profit margins from the current level (5-10%) to a significant double-digit territory for these. who can master the technology.

Tesla is several years ahead of the old players in this field.

The electric vehicle market has seen many new players and the transformation of traditional car manufacturers. Europe and China will be the main engines of growth, but sales of electric vehicles in the United States are also expected to accelerate with growing political support from the new administration.

Overall, EV is reshaping the entire auto industry in many ways. Battery, software, and even talent should be the main battlegrounds for new and traditional automakers.