There’s a lot happening in the electric vehicle space, and it’s happening faster than anyone expected, according to Justin Steil, managing director at PE firm MiddleGround Capital.
“This is real,” says Steil of the record deal flow at his firm. “It’s unfolding faster than anticipated. I don’t see it running out anytime soon.”
Steil heads up MiddleGround’s mobility fund and it is busy buying up anything from a plastic paint company (Plasman Holdings) to an aluminum battery tray maker (Dura) as the automotive industry transitions to EVs.
The painting firm is important, Steil explains, because EVs use a lot more plastic. For instance, they no longer need grills to air-cool the engine, so a plastic component covers the front. Safety features are concentrated in the passenger compartment, Steil says, so this development is safety neutral.
“It’s all about light-weighting,” he says. “How do you get more out of a battery charge.”
Range is a major consideration for EVs, and OEMs are figuring out ways to extend that range. The other factor is how fast a battery can charge. The faster the charge, the higher the cost. But those costs will come down over time, Steil believes.
Reducing weight is one of four trends MiddleGround has identified for investment, along with electrification, including electric drive trains. Two others are autonomous vehicle and connecting technologies.
“Autonomous means self-driving cars to most people,” Steil notes. “But the sensors can be used for parking or blind spots.” And they can be installed anywhere in plastic components.
Connected EVs can interact not only with other cars, but with stoplights, bicycles, and people.
The EV revolution, in short, is in full swing, even though there will be a place for hybrid vehicles for some time. EV penetration has accelerated and forecasts have been revised upwards.
“There’s already more charging stations that gas stations,” Steil says, as charging an EV occurs in many places. “Most are in private garages, where the everyday commuter can charge overnight.”
But parking lots, grocery stores, shopping malls, and other parties are all contributing to the buildout of charging stations as they work to attract EV drivers, he says. As charging gets faster and batteries get better, costs will come down and consumer demand will increase.
Government subsidies for EVs and infrastructure have accelerated these trends, but they have a momentum of their own. Likewise, foreign companies, despite their complaints about U.S. subsidies, have been in this country for a long time – not only OEMs but automotive suppliers as well.
“It’s a very interesting time in automotive,” says Steil. “There is significant change and it is creating a burst of opportunity.”
Alternatives like fuel cells and liquid hydrogen are not a big part of this transition in the U.S., but that may change as OEMs look more closely at emission-free heavy trucks.
In the meantime, manufacturers are aligning themselves with the energy industry, following the lead of these giant companies in setting the pace for the future as demand for all types of vehicles – internal combustion engines, hybrid, and pure electric – continues to grow.
Middle-market investors and manufacturers are not the ones driving the decisions. As Steil notes, “There are larger forces at work.”