Corona and climate targets are accelerating electromobility – AXA IM column

Even if Tesla’s eagerly anticipated “Battery Day” was commented on rather cautiously by experts: Most industry experts agree that the future belongs to electric vehicles. A realization that is also gaining ground outside of the industry: “The world is currently looking for sustainable solutions that take into account the far-reaching effects of the pandemic as well as provide answers to the urgent challenge of climate change. Electric vehicles are an option here, ”says Amanda O’Toole, Portfolio Manager, Clean Economy Strategy, at AXA Investment Managers. And this should have long-term effects – for the industry and also for investors.

The age of fossil fuels is coming to an end

After industry, traffic is the second largest cause of air pollution and accounts for a quarter of global CO2 emissions[1]. The dramatic decrease in air pollution during the coronavirus lockdown has made the world clear about the damage that regular traffic is causing to air quality. With an estimated one-third of the world’s population in lockdown, both air pollution and CO2 emissions have declined by the highest ever recorded.

Even after the first lockdown, old highs are unlikely to be reached again so quickly, which has to do with the economic situation. “I think in the short term we are seeing a relatively cyclical decline in demand for automobiles,” says O’Toole. “Consumers are increasingly worried about the economic future and are postponing major new acquisitions, such as buying a car”. In 2020, vehicle sales with combustion engines are expected to decrease by 23 percent compared to the previous year[2]. For electric cars, a decrease of 18 percent to around 1.7 million vehicles is expected. In the medium and long term, however, O’Toole assumes that demand will normalize.

A sales recovery and sales of 6.9 million units are expected for electric vehicles in the next four years. This has to do with innovations but also with government programs such as the European Union’s (EU) Green Recovery Plan.

The signs are already pointing to change

Through subsidies, incentives and regulation, governments want to end combustion-powered vehicles and achieve their agreed climate targets. In China, for example, the topic of electromobility has officially been declared a priority by the political leadership. Automakers are already responding with ambitious plans for the transition to electric vehicles. Above all, the challenges associated with improving battery performance entail major investments.

But one thing is clear: Not only the vehicles themselves will change. The entire economic environment is changing. In addition to companies in the supply chain, this also includes, to a particular extent, energy supply companies. After all, what good is an emission-free electric vehicle if its drive energy is obtained from the conversion of electricity from fossil fuels?

The era of electromobility will come

From AXA IM’s point of view, the era of electromobility has not yet reached its peak. But if the last century was powered by the internal combustion engine, this century will be battery powered. The world is looking for sustainable solutions that will help it deal with the far-reaching effects of the pandemic and the urgent challenges of climate change. Manufacturers of electric vehicles and related innovation industries offer the opportunity to invest in both.

Disclaimer: The text is a column by AXA Investment Managers. 4investors is not responsible for the content of the column and therefore does not necessarily have to agree with the opinion of the 4investors editorial team. Any liability and claims are therefore expressly excluded by 4investors!
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