How to capitalise on the electric car revolution
Electric vehicles have existed since 1828, and yet their prevalence in popular society has remained the stuff of science fiction for more than two centuries.
It’s only recently that electric cars have become commonplace, helped partly by government policies – such as the planned ban on the sale of new petrol and diesel vehicles by 2040, or the proposal for all new homes to be built with electric car charging points.
Read more: MPs urge government to ban diesel and petrol cars by 2032
But it’s not just that the issue of climate change is being pushed higher up the political agenda. Electric cars are becoming more affordable, bringing them to the mass market.
Launched last year, Tesla's long-awaited Model 3 comes with a starting price of £28,000 – which is the average cost of a new American car. Considering the first Tesla model had a price tag of £86,950, that’s a huge shift in less than a decade.
The past 30 years have seen some huge improvements in battery technology. According to Rathbones’ Sanjiv Tumkur, the amount of energy a rechargeable lithium-ion battery holds has more than doubled since 1991, which in turn has helped reduce the weight of the battery in an electric car.
Tumkur also points out that average electric vehicle battery prices are predicted to fall to $109 per kilowatt hour by 2025, down from $1,000 in 2010.
“Cheaper, lighter and more powerful batteries are crucial for electric vehicles to be cost effective and fast, and in giving alternative energy a greater role in the economy,” he says.
Not only do you no longer have to compromise on performance, but electric cars require less maintenance than their petrol or diesel counterparts, because – as Tumkur points out – the electric motor has around six moving parts, compared to hundreds in an internal combustion engine.
As the revolution accelerates, automobile firms can’t afford to sit still
So how can traders capitalise on this boom?
Tesla is the obvious contender when it comes to specialist electric car companies. The firm is expected to launch its Model Y, semi truck, and Roadster sports car in the next couple of years – and regardless of what you think of maverick founder Elon Musk, the Tesla vision is an exciting one.
Read more: Tesla shares rise as SEC settlement gets nod of approval from US judge
But while Tesla has led the way (and made electric cars cool in the process), all the major car brands have now launched their own electric models.
Companies like Nissan, Volkswagen, and BMW have all invested some serious cash as part of their expansion into the pure electric vehicle market, while Toyota is now well established when it comes to hybrid models – having produced the popular Prius.
Investors should be looking for companies that are investing heavily in electric models; as the revolution accelerates, automobile firms can’t afford to sit still.
And yet, it’s not just the manufacturers of electric cars that are expected to profit from this shift – the firms producing the components that make up these vehicles should benefit too.
For example, lithium and cobalt are used to make the batteries, and so – as more people purchase electric vehicles – the demand for these raw materials will surge.
However, lithium isn’t exactly rare, and as more companies start mining for this commodity in order to capitalise on the shift towards electric cars, supply is expected to flood the market. As the laws of supply and demand dictate, this means that the price of lithium is expected to drop over the next few years.
Cobalt is rarer by comparison, making cobalt-miners like Glencore or ERG arguably better opportunities for investors.
Another option is to invest indirectly in electric cars by buying shares in the companies building the technology. The Liontrust Sustainable Investment team expects increased demand in safety systems, which use electronic technologies in vehicles, such as sensors in steering and braking.
Take French firm Valeo, which offers smart sensors and features for auto emergency braking (AEB). Liontrust predicts that all new cars in Europe could have AEB by 2020, creating a €10bn market.
The asset manager also invests in Hella, which makes low energy LED headlights, as well as semiconductor firms Infineon and ASML.
Electricity as a fuel source is growing, and so charging points could also become a lucrative market. It’s therefore worth taking note of car charging networks like BP-owned Chargemaster, or Shell-owned NewMotion.
Read more: Big Oil is sleepwalking into crisis by ignoring the electric car revolution
If you’d rather not invest in stocks and shares, you can invest in funds that have exposure to electric vehicles and related technologies instead. For example. the Baillie Gifford Global Discovery Fund has some exposure to Tesla, and the Artemis Global Income Fund invests in electric car firm General Motors.
Last year, the number of electric vehicles on the road surged by an impressive 54 per cent, reaching about 3.1m, according to the International Energy Agency. And that’s just the tip of the iceberg, because ownership of electric cars is expected to mushroom to 125m by 2030, as government policies encourage drivers to buy greener vehicles.
But while it’s possible to profit financially from this electric car revolution, the real benefit is creating a cleaner world for us all to live in.
Read more: A guide to good money: How to invest ethically and sustainably