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Charging towards an electrified future

April 12th, 2018
ANDREW DITTBERNER, Chief Investment Officer at Old Mutual Private Client Securities, explores the vast investment opportunities in the electric vehicle value chain.
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As vehicle manufacturers continue to face unprecedented challenges, due to disruptive technology and a higher level of environmental consciousness, the growing list of countries that have committed to going electric-only is a good indication that the demand for electric vehicles (EV) is set to boom. 

As such, the automotive industry is in the midst of a significant transition – one that offers a promising investment opportunity. Just as the internal combustion engine (ICE) displaced horses as the means to propel vehicles in the late 1800s, the electric engine is set to be the largest disrupter in the automotive market 120 years later.

This promising outlook for the electric car has already had an impact on many industries, shining a spotlight on potential investment avenues such as lithium-ion batteries and the elements used in their production. For example, with an increasing list of countries now introducing bans on petroleum and diesel-fueled cars, the rise of electric vehicles has contributed to the soaring price of cobalt – a key ingredient in the lithium-ion batteries used in electric vehicles.

According to Bloomberg, Samsung has joined Apple in taking an unprecedented step by reportedly negotiating directly with a mine in the Democratic Republic of Congo to secure cobalt supplies. “The element is an essential component in the rechargeable batteries used in smartphones, but increasing competition — mainly from electric car manufacturers — has made an already-scarce element even more valuable.”

Companies that we see as offering investment potential in this respect include Glencore – a large producer of copper, nickel, and cobalt, all of which are critical elements in the manufacturing of electric vehicles – as well as Anglo American Platinum, the world’s largest primary producer of platinum.

Earlier this month, Glencore Plc agreed to sell around a third of its cobalt production over the next three years to Chinese battery recycler GEM Co Ltd. Currently the largest purchaser of cobalt in the world, China is vying to be the leading manufacturer of electric vehicles. The deal between Glencore and GEM will see China purchase 50% of the global supplies of cobalt by the end of 2018.

While there may be questions around the relevance of platinum with the onset of EVs, the mass adoption of pure EVs is still many years, if not decades, away. As a result, platinum and its derivatives will remain critical in reducing carbon emissions through their use in catalytic converters, in both the ICE as well as in hybrid EVs that make use of both fuel and batteries.

Other stocks to watch that may not necessarily be obvious candidates to benefit from the ongoing transition in the automotive industry include Alphabet (Google) – who are currently investing large amounts of capital in the autonomous vehicle market and Continental – who produces technologically enhancing products ranging from electric mobility and automated driving components to vehicle infotainment systems.

The onset of electric vehicles, however, has not happened overnight. Although their origins can be traced back long before the invention of the internal combustion engine, it was only in the 1960s following the need to reduce exhaust emissions along with our dependency on crude oil, that the electric vehicle came back into vogue.

A significant driver of the more recent push for EVs is the Electric Vehicle Initiative (EVI) – a body that was established in 2009 with the purpose of bringing together representatives from member governments and partners bi-annually to share knowledge on policies and programmes that support EV development. Ten countries are currently members of this initiative – including China, the United Kingdom, the United States and South Africa, among others – representing the vast majority of the global EV market.

This initiative recently launched the EV30@30 campaign, which set the ambitious goal of 30% market share for EVs in the member countries by the year 2030. 

Although some motor vehicle manufacturers have committed to phasing out petrol and diesel-only vehicles by a specific date, we believe that investors should treat the transition as a longer-term, global megatrend, as opposed to an overnight development. Abandoning traditional motor vehicles in favor of elective vehicles will happen, but it may occur over a much longer timeframe than originally anticipated. 

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