Feels like we have been here before…
The electric vehicle revolution charging forward?
How many people can recall when a famous British inventor last created an electric vehicle? Sir Clive Sinclair dreamt up the C5 in 1979. In that year Millennial’s Baby-boomer parents were getting gooey over Art Garfunkel’s Bright Eyes, while Tubeway Army were ‘…Friends Electric’ and Gary Newman had a hit with “Cars”. Since then social media has taken over our lives and technology has made unimaginable progress, but they don’t make music like they used to.
Last week Sir James Dyson announced plans to invest £2bn into a “radical” battery electric vehicle to be launched in 2020, presumably with more utility, performance and at a much higher price than the £399 C5. This announcement, amongst the daily deluge in this space, is an illustration of the rapid development and the disruption that technology and the plethora of new entrants are having on the automobile sector. As well as this creeping obsolescence of the internal combustion engine and ever increasing competition there are challenges from tighter emissions regulations, diesel share erosion and the cyclical decline in US car demand etc. Thus European carmakers face threats on many fronts, which is reflected in valuations typically half the market average.
...cool analysis in the face of temptation is a virtue
The apparent scramble by investors to buy into the battery electric vehicle (BEV) and future autonomous driving revolution (as well as robotics, automation and digitalisation of everything) is reminiscent of the Dotcom bubble. The excitement is infectious prompting many, if not most, companies to include these buzz words in their investor presentations wherever they can. More worrying are those companies diverting resources away from their core businesses and skills to get involved, despite not knowing which technologies or businesses will be the eventual winners. In the late 1990s the market’s over exuberance was fuelled by the idea “that the higher the cash burn the higher the valuation”. Tesla is certainly burning cash.
The initial sales success of Tesla with its Model S (taking share from the premium brands much to their dismay, especially given indifferent quality) and the apparent cult like brand loyalty is attributed to Tesla’s first mover advantage. But how long will this last? Are current events analogous to the development of the mobile smart phone market? Who remembers the Nokia communicator, or still uses a Blackberry? Being first in the smart phone market has not guaranteed lasting success. As well as the old incumbents fighting back, the Chinese are aiming to create a global brand champion and new entrants are emerging from every dusty dark corner. Should a vacuum cleaner maker not stick to cleaning that corner?
Nevertheless, there have been good money making opportunities along the way for adroit investors, with differing risk appetites, and there still are. Not all vehicles or components face certain obsolescence (e.g. tyres or safety products like airbags) and shortages of resources, such as battery materials (e.g. cobalt), artificial intelligence software engineers, or charging stations could constrain the projected exponential demand for autonomous driving electric cars, as well as throw up opportunities. Waverton’s European funds have historically avoided the pitfalls of investing in areas where disruptive technologies can cause uncertain outcomes, but do currently have exposure to a traditional pure tyre maker as a play on component demand for both the old and latest automobiles (although maybe not so new) and their replacement.
In the meantime the party goes on with a favourite from 1979 McFadden & Whitehead “Ain’t No Stoppin’ Us Now”.
By John Buckland
European Funds Equity Analyst
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