Social and environmental risks to the global economy are likely to lead to unprecedented technological developments, Anne Steele, portfolio manager at Columbia Threadneedle Investments, wrote in a recent market commentary. “Failure to rapidly adopt some of these technologies could have significant financial and environmental consequences. The change comes with significant investment opportunities,” Steele said.
A notable example is the automotive sector, particularly with regard to electric vehicles. With the support of politicians, car manufacturers are selling electric cars in droves. It is no exaggeration to say that the industry is going through a tipping point, perhaps as dramatic as the shift from horses to internal combustion engines over 100 years ago.”
When it comes to choosing the automakers likely to win the race for e-mobility dominance, there is a stark difference between those companies that have credible mid- and long-term strategies for developing green technologies – like Daimler and Volkswagen – and those that don’t. “Recognized automakers are catching up with Tesla quickly as they quickly launch new models at a time when profit margins are at record levels. For example, the European market for battery electric vehicles grew 106% in 2020, while Tesla sales fell by 11%. , says the investment expert.
The next generation of electric cars from major automakers, scheduled to be on the market between 2024 and 2025, will have better design and longer range than today. Then you will become more competitive. In the course of developing new products, car manufacturers are also changing their production processes and making them more sustainable. “The Mercedes-Benz Group is slightly ahead of most of its competitors with a net production target by 2039. The majority of companies building new production facilities rely on renewable energies.”
However, delivery bottlenecks may hinder the planned expansion. One such issue related to the ESG standards concerns the supply of cobalt from the Congo for battery components. Leading European automakers say they only use ethically sourced materials in their batteries, which could lead to shortages of these strategic minerals. The lack of investment in charging infrastructure is another problem.
Overall, Steele expects European automakers to catch up with Tesla: “None of them are pure electric car makers, but that’s largely reflected in Tesla’s stock market valuation premium. Tesla delivered 499,550 vehicles in 2020, which equates to a market cap of 962 thousand euros per car. On the other hand, Volkswagen delivered 9.3 million cars, giving a market cap of 14,100 per car.” European automakers are pursuing clear strategies to increase the share of electric cars in their total sales, so the valuation gap between them and Tesla is sure to narrow.
“As technological change accelerates and awareness of climate change grows, influencing decisions at every level of the global economy, from governments to businesses and individuals, this sector continues to be a major focus for us as investors,” said Steele.
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