Investor Pressure is Speeding the Arrival of Electric Vehicles

Investor Pressure is Speeding the Arrival of Electric Vehicles

As the automobile industry evolves toward an electric future, incentives will be a big driver of the transition — not just potential tax credits to accelerate demand, but investor behavior that helps shift automakers' priorities.

Manufacturers are going to try to ramp up spending on future electric models while maintaining profit at a level acceptable to their shareholders. That will inevitably lead to fewer dollars spent on their gasoline-powered models, and eventually product stagnation in that segment. Businesses can have a dominant market share but still be starved of capital when they're seen to be in secular decline. Just look at the list of brick-and-mortar retailers that have traded at distressed valuations despite sizable revenue bases.

Retailer Toys "R" Us Inc. is a good example of how secular decline affects investor behavior. Revenues stagnated as competition grew from e-commerce companies such as Amazon.com Inc. and larger, more diversified stores such as Walmart Inc. and Target Corp. Toys "R" Us's valuation declined, making the stock compelling to opportunistic investors like private-equity firms. But after one of those investors took control, the focus shifted to cost cutting and taking on debt to milk the company for whatever profit could be harvested before its decline