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Electric vehicles have hit the investor sweet spot

COLUMN: Lars Skovgaard Andersen, investment strategist with Danske Bank, sees attractive return potential in electric vehicles.

As an investor, you need to be aware that there are times you should take care being too careful – without being reckless, of course – not least when it comes to new technology trends. It is such a shame to have missed the boat when a new investment theme starts to move in the equity market, because you listened too much to the experts who pay more attention to aligning the holes in the cheese than seeing the potential in anything new. On the other hand, you can also become too excited about a new technology and overinvest before it reaches the stage of commercial sustainability. 

So while I’m now recommending that you consider investment opportunities involving electric vehicles (EVs), I’m only too aware that the technology is still facing many challenges. Nevertheless, we have reached a point where, in my opinion, the benefits are really beginning to outweigh the risks, including broad public and political support, better batteries for higher mileage per charge, more charge points and solid financial support. What you should also consider as an investor is that if you wait until all the issues of a new technology have been solved, you will often miss out on a large part of the return. 

Technology tipping point on the horizon
Some of the challenges facing EVs are: the infrastructure is by no means ready (we can’t all charge our electric cars at the same time) and charging times are still excessive compared with filling up with petrol. In addition, EVs are still fairly expensive compared with corresponding petrol-powered cars, unless subsidised by way of lower duties or other similar measures. But, to be clear: we are beginning to see a tipping point on the horizon.

Public support is essential for the success of any new technology, because such support tends to influence politicians who, in turn, secure attractive conditions, facilitating the manufacture of the product and bringing it to market. Currently, EVs are enjoying a sweet spot backed by broad popular focus on the environment and climate change and by countries such as China and India supporting the trend in their efforts to reduce their dependence on oil imports (and of course to try to get the runaway air pollution under control). For example, India recently announced that by 2030, 30 per cent of its passenger transport must be powered by electricity.

Lars Skovgaard Andersen

Investment Strategist, Danske Bank

Turning to Western car manufacturers, we note that VW, Ford, Daimler, BMW and others have joined forces to develop production platforms for the electric cars of the future. This shows that not only do they understand that electric vehicles form an essential part of future transport, they are also aware that restructuring production will be so expensive that it will be difficult to do it alone. 

Don’t put all your eggs in one basket
Another classic mistake is to fail to diversify your exposure to a new theme by investing in only one or a few companies, because it can be extremely difficult to spot the long-term winners among emerging new technologies. At the same time, it can be a risky venture to invest in companies going all in on a new technology without having other tried and tested products through which to generate steady earnings. Such companies (and their shares) may prove to be particularly vulnerable if the technology does not evolve as expected or if they fail to be among the industry winners. 

Car manufacturers typify the kind of company that has other revenue streams than just EVs, but the course taken by any long-term winners is hard to predict. Basically, an electric car is merely a computer on wheels, and the tech sector has players with big financial muscles, so I wouldn’t be surprised if some of them turn out to among the winners of the future.

The distinction I’m making between electric vehicles and electric cars is completely intentional, by the way. Tesla may well have made it cool to drive an electric car, but the technology has a lot of innovative add-ons. One example is the electric scooters that have popped up in most major cities recently, or the electric bicycles which are now commonplace on our bicycle paths.

Lars Skovgaard Andersen

Investment Strategist, Danske Bank

Digitalisation is another important trend
So, to summarise, I see some very attractive investment opportunities in EVs right now, and I clearly prefer broad exposure towards many different companies working with the technology. This could be through an ETF rather than trying to pick individual winners, because that could be extremely difficult. And such a dynamic environment is not confined to EVs only. Digitalisation is another important prospect that will eventually result in more or less self-driving vehicles. But always remember that if you are an investor waiting for the self-driving car to emerge, you will probably miss the boat.

This content is not investment advice - you should always speak to an advisor about how a possible investment matches your investment profile before making an investment.