In 2008, Tesla released their first production electric car, the Roadster. Whereas previous attempts at electric cars like the General Motors EV1 looked clunky, the Roadster was sleek, attractive, and powerful. For comparison, the EV1 had an initial range of 60 miles and could accelerate from 0-60 in eight seconds. The Roadster hit the market with a 244-mile range and 0-60 time of sub-four seconds, which put it in a performance category closer to a high-end sports car than an experimental electric vehicle. The world took notice and the ensuing 13 years have seen a massive leap forward in technology, performance, and most importantly, market interest.
In January 2021, GM announced that they would phase out all gasoline and diesel-powered vehicles by 2035 and replace them with an all-electric product line. Ford followed suit in February announcing that it would be all-electric in the European market by 2030. In addition, a new generation of natively electric startups like Lucid Motors, Rivian, and Nikola have potential game-changing products in various stages of development. The consensus is clear that we are inching closer to a tipping point that will lead to an all-electric future.
Like any major industrial shift, there will be winners and losers and the electric car revolution will be no different. While the impact on the automobile industry is certainly interesting, our focus is on real estate winners and losers. Through a combination of advanced planning, public/private coordination, and a little bit of luck, certain markets appear to be well-positioned to benefit from the electrification of the internal combustion engine. Three of them are highlighted in this article.
What We Look for In Well Positioned Markets
While the future can be notoriously difficult to predict in a fast-changing industry like electric automobiles, we think that potentially lucrative real estate markets share five characteristics:
- High Concentration of Intellectual Capital: Electric cars are a complex combination of hardware and software. Cities with high concentrations of intellectual capital in both disciplines are attractive to car manufacturers and their vendors.
- Regulatory Acceptance: There is no doubt that electric cars are at the forefront of technological innovation, but regulators have not necessarily kept up. Cities with progressive governmental policies and the funding to provide incentives stand to benefit the most.
- Manufacturing Infrastructure: Manufacturing electric cars at scale is no small feat. It takes an incredible amount of capital, facilities, and infrastructure to do it well. Not all cities have this.
- Existing Relationships: While not necessarily new, electric cars are still in the early stages of development. Cities that have existing relationships with major players in the industry have a head start over their competitors.
- Electric Automobile Ecosystem: It takes hundreds, even thousands of parts to build an electric automobile. Potentially lucrative markets are those that don’t just focus on one or two companies, but on creating an entire ecosystem of manufacturers, suppliers, software developers, and owners who work in harmony to increase adoption of electric automobiles.
With this framework in mind, we think there are three real estate markets that appear to be well-positioned to benefit from the influx of jobs and investment that come from the electric car business.
Market #1 - Phoenix / Chandler, AZ
According to the US Census Bureau, the Phoenix-Mesa-Chandler MSA is the 10th largest in the United States. Per the most recent estimate, it has a population of just over 5 million people, a 20% increase from the 2010 census. It is consistently ranked as one of the fastest-growing cities in the United States. Using the framework above, here is how Phoenix stacks up:
- High Concentration of Intellectual Capital: Arizona is home to two major public universities, University of Arizona and Arizona State, both of which have well regarded engineering programs. In addition, Phoenix consistently ranks as a city with a large influx of new residents each year, bringing intellectual capital with them.
- Regulatory Acceptance: As a state, Arizona offers numerous programs meant to incentivize electric car manufactures to set up shop and buyers to purchase their products. For example, the Arizona Commerce Authority, which oversees incentives for the state, has been a key player behind tax and jobs incentives for companies setting up shop in the Phoenix Metro.
- Manufacturing Infrastructure: The Phoenix MSA has a long history of manufacturing, especially for high tech products. Companies with some amount of manufacturing presence in the Phoenix metro include semiconductor companies such as Intel and NXP Semiconductor as well as aerospace and defense companies like General Dynamics, Honeywell, and Boeing.
- Existing Relationships: This is perhaps the space where the Phoenix MSA really excels. As a result of the above factors, Phoenix has been able to establish itself as a potential hub for electric car manufacturing. Lucid Motors has a factory in Casa Grande, Nikola is building a factory in Coolidge, and ElectraMeccanica has set up an assembly plant near the Phoenix-Mesa Gateway airport. Combined, these firms will bring tens of thousands of jobs and hundreds of millions of dollars of investment to the MSA.
- Electric Automobile Ecosystem: As a result of their success, Phoenix also has a small but growing electric automobile ecosystem. For example, GM has set up an “IT Innovation Center” in Chandler to support its electric vehicle strategy. Also in Chandler, Waymo is years into their testing program for self-driving automobiles
Phoenix scores high marks in each part of the framework. When combined with the fact that it is a generally pleasant place to live with good weather and nearly unlimited recreational opportunities, it appears to be well-positioned to benefit from the growth of the electric car industry.
Market #2 - Austin - Roundrock
Austin-Roundrock is the 29th largest MSA in the United States, but it is growing by leaps and bounds. Since the 2010 census, it is the fastest-growing top 50 MSA and doesn’t show any signs of slowing down. Residents are attracted by good weather, plentiful jobs, relatively affordable housing, and unique culture. Companies are attracted by a young, diverse, and incredibly smart pool of talent. Here is the case for Austin’s electric car industry:
- High Concentration of Intellectual Capital: Austin is home to the University of Texas, which is a top 15 public university according to US News and World Report. It has an excellent engineering program and consistently produces highly sought after talent. But, they aren’t alone. Nearby Houston, itself the 5th largest MSA in the country, is home to a world class university in Rice, and College Station is home to Texas A&M, also a highly regarded school. Austin is a powerhouse of intellectual capital and electric car companies have taken note.
- Regulatory Acceptance: As a state, Texas has a strong reputation for a business friendly climate. Austin, specifically, has made itself attractive to electric car companies and owners through its Texas River City Plug-In Electric Vehicle Infrastructure Plan and additional governmental incentives for job creation.
- Manufacturing Infrastructure: From a technology standpoint, Austin has an admirable track record for successfully manufacturing and distributing high tech products. For example, Apple recently announced a major Austin investment for a facility meant to manufacture its Mac Pro line of computers. In addition, Austin is home to manufacturing plants for technology giants like Dell Computer, IBM, and Samsung.
- Existing Relationships: This is also where Austin shines the most. Tesla, perhaps the leading electric car producer, is ramping its presence in Austin in a major way. Their “Giga Texas” plant is currently under construction with plans to hire up to 10,000 people through 2022. In fact, Tesla CEO Elon Musk has personally moved to Austin and it is speculated that Tesla HQ could be close behind.
- Electric Automobile Ecosystem: Austin already has a strong technology ecosystem, but the presence of the leading electric car manufacturer is incredibly beneficial for the development of an ecosystem dedicated solely to electric cars. Ayro is planning to manufacture electric vehicles in the Austin area. So is Hyliion, which recently went public through a SPAC. Volcon, who produces two wheeled electric vehicles, recently chose Austin as their HQ and others are sure to follow.
Finally, Austin also has “it” which is that elusive quality that makes it hip and attractive to a wide range of residents. Its population is expected to double in the coming years and the electric car industry will no doubt be a contributor to this growth.
Market #3 - Pittsburgh, PA
Pittsburgh may be a curious choice for this list. It is approximately the same size as Austin, but it is not experiencing the same type of rapid population growth. It is notorious for its cold, grey winters and steel industry job loss, but it is also experiencing a renaissance of sorts driven in large part by an emerging high-tech cluster of which electric vehicles play a part. Here is the case for Pittsburgh:
- High Concentration of Intellectual Capital: From an engineering and technology standpoint, there are few universities in the world as highly regarded as Carnegie Mellon. In fact, it is ranked #6 in the US News and World Report rankings. Located across the street, the University of Pittsburgh is also a highly regarded school. Combined, these institutions produce the world class engineering talent that is highly coveted by electric car companies. In fact, Carnegie Mellon has a dedicated “Vehicle Electrification Group” which provides critical research and talent to electric car companies.
- Regulatory Acceptance: As part of their transformation into a technology hub, Pittsburgh has been a leader in providing incentives to electric car companies and owners. In fact, a car insurance company recently ranked Pittsburgh as the 7th best city to own an electric car.
- Manufacturing Infrastructure: Pittsburgh is known as the “steel city” and this reputation is reflected in the name of their legendary NFL franchise, the “Steelers.” Through much of the 20th century, they were known for the high quality steel produced in their factories. This manufacturing know-how translates well into making a contribution to the electric vehicle industry.
- Existing Relationships: While Pittsburgh may not be a leading player in the direct manufacture of electric vehicles, they are home to major companies that contribute to the production of electric vehicles. For example, PPG creates innovative coatings for electric vehicles and Covestro produces high quality plastics that are used in many electric vehicles.
- Electric Automobile Ecosystem: The Pittsburgh Technology Council recently provided a round up of the companies that are active in the electric vehicle space. In addition, Pittsburgh has a broader emerging technology ecosystem with a sizable Google campus and companies like Argo-AI which is working on technology for self-driving vehicles.
When compared to Phoenix and Austin, Pittsburgh’s cost of living is more affordable and their offerings in arts and culture make it a hot destination. Recent accolades include LinkedIn’s ranking as the 7th best city in the US to start a career and WalletHub’s ranking as the 6th best city for STEM professionals. Relative affordability, strong job opportunities, and very smart residents make Pittsburgh an attractive place for companies in the electric car industry.
So, What Types of Properties Make Sense in These Markets?
While an influx of people, jobs, and investment is generally good for all property types, it stands to reason that there will be some that benefit more than others. We think that the industrial and multifamily asset classes are in the best position to benefit from the growth and expansion of the electric vehicle business in these cities. Investors should be aware of the needs of high-tech plants and high-income residents and focus their investment strategy on properties that meet them.
For example, tech workers tend to have high salaries and a desire for high-speed internet and tech-forward amenities in their residences. So, multifamily investors may be well served to focus on class A and B properties in the above markets and tailor property amenities towards this high-tech workforce.
Summary & Conclusion
The broader economy appears to be close to a tipping point that could see the gradual phase-out of gasoline and diesel-powered vehicles over the next decade or two. This will be a massive shift for both consumers and manufacturers and certain cities stand to benefit.
When trying to identify which cities stand to benefit the most, we believe that they will be those that have a high concentration of engineers, scientists, and software developers, a business-friendly government, existing manufacturing infrastructure, existing relationships with electric vehicle industry participants, and an emerging ecosystem to support the industry as a whole.
Based on these criteria, it appears that Phoenix, Austin, and Pittsburgh are well-positioned to take advantage of the coming shift through the development of new manufacturing facilities, relocation of supporting vendors, and all of the jobs and residents that come with both.