Impax Asset Management, sub adviser to the Pax Global Environmental Markets Fund (PGINX), collaborated with a group from Imperial College London this summer to conduct deeper research into the rapidly accelerating electric vehicle (EV) market.
The key development in Impax’s recent thinking is with regard to the time it will take for a transition from fossil fuel-powered vehicles to EVs, and the role that hybrid cars will play in this.
Our view is that the electrification of vehicles is occurring more quickly than was expected by many observers. This is primarily due to an alignment of three key factors:
Our research also reveals two areas we classify as ‘key unknowns’:
In our view, battery development will drive EV penetration, and so the most logical investment opportunities are in this area. However, many battery manufacturers face several issues that act as a drag on their profitability, including poor returns, overcapacity, and the risk of stranded assets. Currently there are too many players in a capital-intensive market.
Instead, we seek to invest in companies that are benefiting from growth in a proven technology. We avoid conceptual products not yet ready for the market. We believe there is more value to be found further down the value chain, for example, in transducers, which are used in the electronic systems outside the battery. They are used to handle a vehicle’s power management and in other energy efficiency applications, such as controlling the flow of power through the drivetrain. As the complexity of these and other systems in EVs increases, so does the need for semiconductors – another significant investment opportunity.
The uncertainty over the pace of EV charging infrastructure rollout may also bring investment opportunities.
Rapidly falling costs of EVs could be a catalyst for widespread adoption of autonomous cars, although it would be technically possible for vehicular automation to exist in a fleet of ICE vehicles. Vehicular automation is a compelling idea. It has the potential to reduce accidents and it would also likely reduce vehicle production dramatically by increasing the utilization rate of the overall fleet. The impact of autonomous driving is a topic which we will be exploring further, along with other insights that the research with Imperial College London yielded.
ALPS Distributors, Inc. is not affiliated with Impax Asset Management.