Why Investors Should Learn Wright’s Law & How it Applies to EV Batteries
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Taking Wright's Law in to account, ARK Invest believes that if Electric Vehicles (EVs) are to deliver on their potential, it will be due to advances in battery technology that lead to higher efficiencies and lower cost.
Technological development is often not linear. As we develop a new technology and our understanding of material science increases, we are often then able to develop the next generation even quicker. As a result, it can be difficult to forecast exactly where we will be in the future.
In order to get a better prediction of what the future will hold, we often must look to the past. This means analyzing the rate at which certain technologies develop, and the speed at which they transform the world we live in. To better understand past rates of development, multiple individuals over the years have created self-titled laws founded on this idea. The two most commonly referenced examples of this are Moore's Law, and Wright's Law.
Interestingly, ARK Invest notes that when comparing these two laws, it found Wright's Law to be, “40% more accurate than one based on Moore's Law” when forecasting future cost of Lithium Iron Phosphate (LFP) based batteries. With this being the case, investors interested in the future of EVs should learn the basics of Wrights Law.
Manufacturers and Innovators
Before we take a closer look at Wright's Law and how it pertains to battery technology, the following are a few companies which may be of interest to investors looking for exposure to the energy sector.
Although Tesla may rely on third parties to actually manufacture its battery packs, the demands and needs of the company have single-handedly been responsible for much of the innovation within the EV sector over the past 20 years.
While 2022 saw a sharp decline in TSLA stock, the tides have turned, with 2023 marking an impressive turnaround of +74% YTD at time of writing. Despite a rough 2022, the company was still able to boast a revenue of $81.46B over this time.
Tesla is based out of Texas, United States.
Lithium Americas Corp. (LAC)
Although relatively unknown to the general public when compared to a company like Tesla, Lithium Americas Corp. plays an important role in the battery industry. Known as a resource company, Lithium Americas Corp. is responsible for helping to fill the worlds supply demands for Lithium. At time of writing, analysts have listed LAC as a strong ‘Buy'.
Lithium Americas Corp. is based out of British Columbia, Canada. It was founded in 2007, and employs over 65.
Panasonic Holdings Corp. (PCRFY)
Beyond its more public facing products like consumer electronics, Panasonic boasts various divisions that focus on the R&D and manufacturing of technologies like EV batteries. In fact, Panasonic is a major manufacturer and supplier of the battery packs used in many Tesla vehicles. A true giant, Panasonic boasted revenue of $7.39T in 2022.
Panasonic Holdings Corp. is based out of Osaka, Japan, and employs over 240,000 globally.
This law is one that looks at manufacturing costs against time. It states that manufacturing costs will reduce up to 15% for every doubling in production. Essentially, the more we make of an item, the better we become at doing so.
Developed in 1936, Wright's Law was the brainchild of T.P. Wright – as its name would imply. While originally an observation made surrounding manufacturing processes within the aeronautical industry, it has routinely been used/applied in the decades since to forecast technological developments.
Despite Wright's Law existing for nearly three decades prior to the advent of Moore's Law, it is the latter with which most people are familiar.
Developed in 1965, Moore's Law is a basic forecasting tool that assumes advancements in manufacturing processes will continue to increase over time. It is a law that looks at past trends, and extrapolates them out to forecast data points in the future.
In the case of its creator, Gordon Moore, it originally referred to our ability to fit an increasing amount of transistors on a chip, which appeared to increase by 100% bi-annually .
Some believe we are nearing the end of Moore's Laws usefulness with regards to microchips, as we may be approaching the limits of how small transistors can get.
When applying Wright's Law to EV batteries, we can potentially learn more than just expected costs. We can also forecast future performance metrics. One in particular is noted by ARK Invest as being a helpful ‘catch-all' metric to give an overview of performance increases – charging rates.
We can already expect for battery efficiency, and thereby range, to increase over time. This means that relatively speaking, a much smaller battery will be needed tomorrow to achieve the same range as they can today. This results in both manufacturer and end-user cost savings.
Charging rates further amplify this lack of need for large battery packs. Once charging infrastructure is sufficient, there will be no need to carry around a larger battery than necessary when you can top up in mere minutes.
If Wrights Law holds true, with regards to charging rates, ARK Invest notes that we can expect to achieve 200miles of charge in 4 minutes, by 2027.
It is important to remember that Wright's Law is simply a forecasting tool that has the ability to paint a broad picture of what the future may hold. Every technology has its limits, and every development process waxes and wanes over time.
Even on the conservative side on things though, Wright's Law points to a bright future, closer than many realize, in which EVs will have surpassed their internal combustion engine (ICE) counterparts in just about every meaningful performance metric.