Formula-E, the new Formula 1 spin-off using only electric cars, came to London at the end of June with one of its major races for the year. It casts a spotlight on some of the exciting innovation and investment opportunities in the sustainable transport sector.
It is a sector that is growing fast, driven initially by tightening regulations and climate change. For example in 2012 the US introduced a policy requiring 90% of all vehicles sold in the country to have fuel efficiency of 54 miles to the gallon by 2050, and the EU has set car manufacturers a target of a 50% reduction in emissions by 2021. This regulation is, in turn, catalysing innovation in the sector.
Regulation is driving innovation
Most major car manufacturers including Audi, BMW, Mercedes, Volkswagen and Toyota now all produce either hybrid or electric vehicles, and although electric cars currently only make up about 1-2%
[1] of the total market, demand is growing. In 2014 registrations for alternatively fuelled cars was up nearly 61% on 2013.
[2] This isn’t just better for the planet but it is also better for drivers, a recent study by Cambridge Econometrics estimated a switch to electric vehicles could save drivers up to £1,000 every year and reduce CO2 emissions by up to 47% by 2030.
[3][4]
How can I get my investments on the sustainable transport road?
Sustainable transport isn’t just about electric car-makers. Companies focused on improving fuel efficiency and battery life are also well placed to prosper
[5]. Research from WHEB Asset Management shows only 15% of energy from fuel is used to actually move the car and this has led them to US firm Johnson Controls.
Johnson Controls, have developed ‘Start-Stop technologies’, which turn a car off when it is at a standstill and restarts it when the driver’s foot is removed from the brake, the introduction of this technology improves a vehicle’s fuel efficiency by 3-8%
5. This is better for the environment and leads to good returns for investors. WHEB invest in Johnson Controls through their FP WHEB Sustainability fund which includes sustainable transport as one of its investment themes and last year returned 14.15% against its benchmark (MSCI World) which returned 11.32%.
|
1m |
3m |
6m |
1yr |
3yr |
5yr |
10yr |
| FP
WHEB
Sustainability
A Acc in GB |
-3.88 |
-4.32 |
5.33 |
14.15 |
44.83 |
33.36 |
|
| Index
MSCI World
TR in GB |
-3.00 |
-5.55 |
0.04 |
11.32 |
48.95 |
72.43 |
104.93 |
Data at 09/07/2015 FE Analytics
Another company developing products aimed at improving fuel efficiency is Borg Warner, an automotive supplier who produce turbochargers, engine-timing components and emission systems to improves fuel efficiency and reduce harmful emissions. Borg Warner is held by IMPAX Environmental Markets – which returned 65.70% over the past three years and outperformed its benchmark MSCI Small Cap which returned 54.87%.
|
1m |
3m |
6m |
1yr |
3yr |
5yr |
10yr |
| Environmental
Markets Ord
10P TR in GB |
-4.13 |
-3.74 |
3.61 |
4.03 |
65.70 |
46.63 |
103.78 |
| Index
MSCI World
Small Cap TR
in GB |
-3.55 |
-5.40 |
2.62 |
11.54 |
54.87 |
87.06 |
23.45 |
Data as at 09/07/2015 FE Analytics
A fully charged industry
As the Formula E cars line up on the grid though, it is not all good news for the industry. Uptake of alternatively fuelled vehicles has been slower than forecast – hindered in part by consumer concerns about battery life, range and price. Batteries currently account for about 25% of the cost of an electric car
8. The cheapest have a range of about 130km
9 while the best performing ones, used by the likes of the Tesla model S range over 400 km
10.
The race is on to develop a low cost battery with good range. Tesla have invested in factories and scaled up production to lower price through volume. (They’ve also begun to develop electric batteries to enable households to better store their own solar energy). Volkswagen have invested in QuantumScape an energy storage company that aims to treble the range of their electric vehicles
[1], and there are also rumours that Apple is working on an electric car
[2].
So just like last month’s races the potential of this sector is electrifying.
To discuss investing in sustainable transport in more detail or for more information please see our
website or
contact us.