Why EVs are the future: Market growth, investments & the impact on the auto industry

How will electric cars affect the automotive industry?

Electric vehicles are changing how the auto industry designs, builds and sells cars. Traditional manufacturers are gradually shifting away from internal combustion engines toward electric and hybrid platforms. This shift demands new supply chains, retraining of workers, and substantial investment in retooling factories.

The pace of change varies by region and company, but the direction is clear. Firms like Volkswagen, Ford, and General Motors have committed billions of dollars to expand their electric vehicle offerings. At the same time, companies like Tesla (built around a fully electric model) and fast-growing Chinese manufacturers like BYD are gaining market share with newer manufacturing systems, software integration, and direct-to-consumer sales models.

This shift is not just about drivetrains. As more vehicles become connected and digitally controlled, software is playing a larger role. Features such as battery performance monitoring, remote diagnostics, and in-vehicle updates are moving the focus away from mechanical complexity toward digital platforms. That's changing what gives companies a competitive edge.

The rise of electric vehicles reflects a broader industrial reset. Legacy automakers are adjusting long-standing strategies while new players are reshaping what the modern vehicle can do. The companies that adapt fastest will likely define the next generation of market leadership.

Risks of EV investing

The electric vehicle sector continues to grow, but investing in it comes with significant risks. Here are the main ones:

Battery supply chain disruptions

The production of electric vehicles depends heavily on a limited number of critical minerals, such as lithium, cobalt, and nickel. These resources are largely sourced from a handful of countries, making the supply chain vulnerable to geopolitical risks and fluctuations in global trade. Although mineral prices can vary over time, challenges such as financing constraints and project delays continue to affect the sector. These issues impact not only mining operations but also car manufacturers, who rely on consistent and predictable material costs to support long-term planning.

Valuation risk and shifting sentiment

Investor optimism has driven up valuations across the EV ecosystem, sometimes ahead of actual earnings or delivery numbers. Several high-profile companies have struggled to meet expectations, leading to sharp market corrections. With tighter monetary policy and higher financing costs, companies that depend on future growth without near-term profits are especially vulnerable.

Margin pressure and intense competition

As more firms enter the EV space, price competition is intensifying, especially in the entry-level and mid-range segments. Manufacturers are cutting prices to retain market share, compressing margins across the board. This dynamic is most acute in regions where subsidies are being phased out or demand is softening.

Early-stage volatility

Startups in EV batteries, software, and charging infrastructure remain high-risk. Commercialisation has been slower than expected in many cases, and funding has declined in recent years. Business models are still evolving, and profitability timelines remain uncertain, leading to layoffs, pivots, and, in some cases, exits from the market.

Policy and regulatory risks

Government support, through tax credits, fuel economy standards, and emissions targets, has played a major role in EV adoption. Any reversal, delay, or inconsistency in these policies can directly affect consumer demand, production economics, and long-term planning for manufacturers and suppliers.

Infrastructure constraints

Charging infrastructure rollout remains uneven. In some markets, public charging is still insufficient to support mass adoption, particularly outside urban areas. Infrastructure lags may slow EV adoption and limit growth for companies banking on rapid uptake.

Technology and residual value risk

The EV sector is evolving quickly. Battery chemistry, charging standards, and software platforms are in constant flux. Companies betting on the wrong technologies may fall behind. Meanwhile, concerns around battery degradation, rapid model cycles, and falling new car prices are putting pressure on used EV values, affecting leasing economics and resale markets.

Government support and incentives in the EV industry

Policy support has played a central role in accelerating electric vehicle adoption. Governments have offered financial incentives, regulatory targets, and infrastructure funding to encourage the shift away from internal combustion engines.

In the United States, the Inflation Reduction Act introduced tax credits of up to USD 7,500 for eligible electric vehicles, alongside significant subsidies for domestic battery production, critical mineral sourcing, and clean energy projects. However, tightened rules on sourcing and assembly have reduced the number of models that qualify.

Across Europe, fleet-wide CO₂ targets are supported through a mix of government subsidies and infrastructure investment. In some markets, including Germany and the United Kingdom, a reduction in purchase incentives has contributed to slower growth in electric vehicle sales.

China has established itself as one of the most supportive markets for electric vehicles from a policy standpoint. In addition to earlier purchase subsidies, ongoing measures include regulatory credits, state-backed financing, government procurement mandates, and extensive investment in local supply chains and domestic brands. The policy focus has shifted from stimulating consumer demand to consolidating national leadership in electric vehicle manufacturing.

Incentives, however, are not guaranteed. As markets mature and budgets tighten, some governments are reducing or redefining their support. The investment outlook will depend on how clearly and consistently policies are implemented. Companies exposed to multiple jurisdictions need to stay alert to changing rules and adjust their compliance and go-to-market strategies accordingly.

The impact of electric vehicles on the environment & energy considerations

Electric vehicles are often presented as a climate solution, but their environmental footprint depends on several factors: how electricity is generated, how batteries are made, and how the power grid adapts to rising demand.

Battery-electric vehicles produce no tailpipe emissions — meaning they don't release exhaust gases while driving, which helps reduce air pollution and greenhouse gases, especially in cities or countries with clean air targets. The climate benefit grows when EVs are charged using low-carbon energy sources like wind, solar, hydro, or nuclear rather than fossil fuel-based grids.

However, battery production is energy-intensive and requires raw materials such as lithium, nickel, and cobalt. This makes EVs' manufacturing footprint higher than that of conventional vehicles upfront. Over time, this gap narrows. Most lifecycle assessments show that EVs emit significantly less CO₂ than internal combustion vehicles over their full lifetime, particularly in regions with cleaner electricity mixes.

Grid impact is also part of the equation. Today's EV adoption levels are manageable, but large-scale uptake could strain local grids if charging isn't well planned. To manage this, utilities and policymakers are investing in smart charging, time-of-use pricing, and emerging vehicle-to-grid technologies. In countries with strong renewable energy supply, EVs could eventually help balance load by absorbing excess generation during off-peak hours.

As adoption grows, the environmental question will change from "Are EVs better?" to "How clean is the energy system they rely on?" The answer will depend on grid decarbonisation, battery innovation, and how charging is integrated into broader energy planning.

Conclusion: Is investing in EVs still a smart long-term bet?

The electric vehicle transition has moved from speculative to strategic. EVs are reshaping demand for raw materials, disrupting legacy manufacturing, accelerating innovation in semiconductors and software, and driving infrastructure spending across power grids and charging networks.

Still, not every company tied to EVs will succeed. Profitability pressures, volatile input costs, and changing government incentives will create clear winners and losers. If you want to increase your EV exposure, it's advisable to consider the entire EV value chain—batteries, materials, software, and infrastructure—and approach the space with diversification, selectivity, and a long-term perspective.