The drive for a greener world means manufacturers are turning their full attention to electric car production.
Last month, energy regulator Ofgem revealed one in four of us plans to buy an electric vehicle in the next five years.
Electric and hybrid sales reached a record 14 per cent of all new car sales in the UK in March, up from 7.3 per cent the year before.
Going green: Electric and hybrid sales reached a record 14 per cent of all new car sales in the UK in March, up from 7.3 per cent the year before
Although electric car sales represent just 3 per cent of cars sold globally, the race to go green is opening the market. This year, sales are forecast to rise by 70 per cent.
So how can investors plug into the electric car market?
Janet Mui, investment director for wealth manager Brewin Dolphin, says: ‘There is a huge revolution around the globe as we switch to electric vehicles, presenting exciting opportunities.’
The U.S., Europe and China are leading the charge. Boosted by state subsidies, Chinese manufacturers account for more than 50 per cent of global production and are also the biggest producers of batteries. By 2025, the Government wants around 25 per cent of new cars sold to be electric.
In the UK, Boris Johnson has announced a ban on the sale of diesel and gas cars by 2030, ten years earlier than planned. Meanwhile, President Joe Biden wants to transform America’s electric car industry. His multi-billion-dollar plans include building 500,000 charging stations.
Chinese start up Nio is targeting the luxury car sector and – like Tesla – has models with hefty price tags. Valued at more than £42billion, shares are trading at around £29.62, down from a year high of £44
Tesla is the market-leading electric car-maker. But with a company valuation of more than £600billion and shares trading at £441.35, up from around £47 in 2019, its shares are an expensive investment.
Chinese start-up Nio, like Tesla, targets the luxury car sector and also has a hefty price tag. Valued at more than £42billion, shares are trading at around £29.62, down from a year high of £44. A microchip shortage halted production in March, and in the past it has relied on a state bailout to stay afloat.
Chinese car-maker BYD, backed by Warren Buffett, has been successful in the mass market and is posting stronger sales than Nio.
Start-ups XPeng and Li Auto, both founded in 2015, have gained multi-billion-dollar valuations.
But Laura Hoy, equity analyst at Hargreaves Lansdown, warns investors not to be dazzled by the values based on forecasts.
‘The future of automobiles is electric,’ she says. ‘But firms that make only electric vehicles have added risk as they can be overhyped, raising their valuation. That’s the case with Tesla; if it doesn’t live up to the hype, the stock could slide.’
While they look exciting, start-up e-car-makers may make a loss for years, but be propped up by investors. But if they lose patience and pull out, share prices can drop.
OLD VS NEW
For cheaper alternatives, look to traditional motor companies. Ford says by 2030 its passenger vehicles sold in Europe will be electric. While General Motors is targeting a zero-emissions range by 2035.
Volkswagen tripled its battery electric car sales in 2020 and a cheaper version of its ID.3 car may be competition for Tesla’s Model 3, as it’s more affordable.
‘Volkswagen’s electric car roadmap could see it eclipse Tesla in units sold in the next few years,’ says Paul Johnson, investment analyst for the fund Polar Capital. ‘It has a research budget that dwarfs Tesla and most traditional car manufacturers.’
Volkswagen has recently introduced cheaper versions of its new ID.3 electric hatchback. In some European countries where incentives are more favourable, it will be priced the same as a petrol VW Golf
But the move to electric cars without damaging petrol and diesel sales may be a balancing act for old car makers. It remains to be seen if they can scale up production of e-cars and keep costs low.
Hargreaves Lansdown suggests the Legal & General Future World ESG Developed Index for investors who want a small amount of Tesla stock. The fund tracks the Solactive L&G ESG Developed Markets Index. If you had invested £10,000 two years ago, it would now be worth more than £13,000.
Brewin Dolphin suggests Scottish Mortgage Trust for investors who want exposure to Tesla and Nio. An economy unreliant on fossil fuels has been a theme for the Ballie Gifford trust. A £10,000 investment five years ago would be worth more than £34,000.
Billionaire financier and Berkshire Hathaway Chief Executive Warren Buffett (2nd R), Microsoft founder Bill Gates (R), Berkshire Hathaway Vice Chairman Charlie Munger (2nd L) and BYD Chairman and President Wang Chuanfu (L) gesture at the national launch ceremony for the BYD M6 vehicle in Beijing September 29, 2010
Investing in firms making batteries and microchips is another route into the green car market.
Market-leading battery makers include Chinese firms BYD and CATL. Tesla is also a key player.
Rob Burgeman, investment manager at Brewin Dolphin, likes the iShares Electric Vehicles and Driving Technology ETF for investors who want a broad portfolio covering car and battery makers. Companies include BYD, Tesla and Kia Motors, as well as firms making auto parts and microchips.
If you’d invested £10,000 when the ETF was set up two years ago, it would be worth around £14,500.
Laith Khalaf, financial analyst for stockbroker AJ Bell, suggests Liontrust Sustainable Future Global Growth fund, which supports transport development. The fund holds Infineon Technologies which makes microchips for electric vehicles and turned a £10,000 investment five years ago into more than £20,000.
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