An easy way to gain access to the whole ecosystem around electric vehicles

An easy way to gain access to the whole ecosystem around electric vehicles

20 April 2021 from Mikael Syding

No, it will not soon be illegal to drive your car with a petrol engine. No, it does not involve any significant financial risk to buy a new petrol car today. And, no, it does not make you an environmental culprit, at least not to a greater extent than a Tesla buyer. The pure electric cars, and especially in the high-performance segment where Tesla focuses, have at least as much impact on the environment as an ordinary car if you take into account the entire life cycle. This is mainly due to the dirty activities around battery production, especially the mining of battery metals, but also that the heavy batteries have to be pulled around on the roads often charged with non-renewable energy.

On the other hand, it is true that the market for hybrid cars and electric cars should continue to grow rapidly for the foreseeable future. Norway is alone in aiming to only sell electric cars as early as 2025, but related to this, even Germany in 2050 has a zero emission target for carbon dioxide, which presupposes that far fewer petrol cars remain on the streets. When the proportion of newly sold cars globally is to go from today's only about 3% to 50% in fifteen years and then approach 100% in another 15 years, the growth will be almost unimaginably high. It will put enormous pressure on the entire ecosystem around passenger transport, from electricity production and electricity distribution to mining, battery manufacturing, new car designs and digital control systems. It is not easy to keep track of where the bottlenecks give rise to e.g. increased bargaining power with positive earnings effects and vice versa. Should one invest in early electric vehicle players such as Tesla, old proven car manufacturers such as GM and VW, in battery manufacturers (where Tesla is also active as a fitter of other manufacturers' battery technology), or rather focus on mining or power companies?

Vontobel's Electric Vehicle Basket is a new certificate from the Swiss investment house that addresses the difficulty of choosing winners in the largest industrial changes since the car market took off in earnest 100 years ago. Personally, I think that the certificate should have been supplemented with investments in traditional car manufacturers such as Toyota, VW and GM, which in practice must be responsible for raising electric cars' share of new sales from close to half to half if it is to be possible in just 15 years. But at the same time, the bold composition of Vontobel's electric car basket, which has 32 companies with an average starting weight of about 3% each, looks positive. About 2/3 of the companies had a 2.3% starting weight in the basket and 1/3 have double the weight. Among the heavyweights with 4.5% starting weight are of course Tesla, but also companies such as Norilsk Nickel (battery metals), Workhorse group, NIO, XPeng and Li Auto (electric cars). There are also component manufacturers in the basket, all with the lower weight 2.3%, e.g. BYD, Infineon, Lear and Aptiv. On the battery and material side, technology giants such as Samsung (4.5% weight) are mixed with, for example, LG Chem (4.5%) and the raw materials and trading group Glencore (2.3% starting weight in the basket). I would have liked to have seen some green power companies in the basket, but infrastructure investments such as Blink Charging and Alfen Beheer still make the product feel reasonably comprehensive. The management fee in the certificate is 0.75% p.a. As an investor you bear Vontobel’s credit risk (the risk that the issuer of the certificate is not able to fulfill its obligations under the certificate).

The basket certificate has a fixed term of three years (until 2024) and provides an easy way to gain exposure to the entire ecosystem around electric cars, whose market is thus expected to grow by about 20 times in 20 years. Regardless of whether it is mines, batteries, semiconductors, old or new vehicle manufacturers that become the winners of the electric car industry, you could be on the journey. Where we are right now, I think it's extra good that Tesla initially only made up 4.5% of the basket, because after an incomparable time on the stock market, it will be extremely difficult for Tesla to defend its position when all other car manufacturers in the beginning of the 2020 years finally got the focus on electric cars. Tesla has already shown both on the roads and the stock market at what breathtaking pace electric cars can accelerate, environmentally friendly or not. Now it's the rest of the industry's turn. In any event, investors in the certificate should be willing to accept the risk in the stock market over the term of the product similar to a direct investment because not every company can be a winner and losses are possible. Where do you stand when the market share for electric cars pulls from 0 to 60 faster than the copper mines barely have time to catch their breath when the entire global electricity grid has to be upgraded?

@Mikael Syding

Important legal information

Legal notice

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capitalprotected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.

13/05/2021 14:27:56


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