In the universe of technologies about to reshape our everyday, electric cars rank pretty highly. While robotics and artificial intelligence may be transforming the largely unseen manufacturing world, increasingly electric cars are becoming the new must-have for consumers.

In transport, electricity has taken hold where hydrogen fuel cells failed to. Both energy sources now represent old technology, but the continuous development of electric motors and batteries over many previous generations seems to have won the day.

No longer the sole preserve of city runabouts, electric propulsion is now finding its way into much larger and heavier vehicles. At this week’s Paris Motor Show, visitors will find a new high performance hybrid from Infiniti standing alongside luxury hybrid or fully electric SUVs from Mercedes, Lexus, Jaguar and Honda1.

Not that electric vehicles (EVs) are without their problems – from an environmental perspective, ironies abound. True, electric cars remove sources of pollution from cities and urban areas. However, by the time electricity reaches a charging point, a considerable amount of energy – perhaps as much as 50% has already been lost2.

The fossil fuels burnt in power stations to generate the electricity needed to charge a car battery might have been better used being burnt directly in a car engine if energy efficiency were the main objective.

Still, such considerations may not need to concern us here. Governments, energy companies and car makers are now stood full-square behind a highway that hums to the tune of electricity.

In a sign the future is already here, sales of EVs – hybrid, plug-in hybrid and pure electric – reached a record high in the UK in August, accounting for one in 12 of new car purchases3.

That result comes just a month after the floating of UK government proposals to require all new homes in suburban areas in England to include a charging point for EVs4.

That’s as nothing compared to what’s happening in China though, which currently accounts for about half of the entire world’s purchases of EVs. Chinese companies now make up nine of the top-10 EV makers worldwide as ranked by Bloomberg New Energy Finance5.

China’s experience demonstrates the power of an ambitious legislative approach to cleaning up air pollution, which includes a requirement to secure a licence to purchase a petrol driven car – often entailing a long delay.

According to recent research, EVs are due to suck up 9% of all the electricity demand worldwide by 2050, compared with just 0.2% today. Demand is expected to increase as battery prices fall by as much as two thirds over the next 12 years6.

For that to happen, battery developers will need to get their skates on. The time taken to charge an EV, range and a lack of charging stations are also great issues that need to be addressed to persuade more consumers to commit to the leap away from fossil fuels.

There has been considerable progress. The fully electric Jaguar I-Pace luxury SUV on show in Paris this week has a claimed range of up to 292 miles and can charge at a rate of 168 miles each hour at quick charging stations7.

Buses in Geneva now recharge as their passengers board and exit in as little as 20 seconds8.

The opportunities for investors may largely lie where there are currently bottlenecks or pinch points in the delivery and storage of electric power.

In many cases, investors will find they already own an exposure to the electric revolution, perhaps through the oil companies that have invested in research; carmakers with advanced hybrid or electric programmes; the mining companies benefiting from shortages of the lithium, cobalt and manganese required to build battery packs; or even the power network operators due to see demand increase.

Fidelity’s Select 50 list of favourite funds can provide traction for investors wishing to gain exposure to the rapid take-up of EVs.

Increasingly, oil majors offer such a route. In June, BP acquired the UK’s largest car charging specialist – Chargemaster – for £130 million9. Not to be outdone, last month Shell led a US$31 million investment into a Silicon Valley start-up for fast charging EVs10

The Fidelity Enhanced Income and Majedie UK Equity funds both have large positions in BP and Shell.

BHP Billiton, the second largest holding currently in the Maple-Brown Abbot Asia Pacific ex Japan Fund, is reportedly ramping up its focus on battery-grade nickel production. Using more nickel in lithium-ion car batteries reduces the amount of expensive cobalt that has to be used 11.

The carmaker Toyota is the largest holding in the Schroder Tokyo Fund and ninth largest in the Baillie Gifford Japanese Fund. Toyota is on display in Paris this week, marking the return of its Camry model to Western Europe with a 2.5 litre petrol hybrid12.

Sources:

1,12 Autocar, 27.09.18

2 Schneider Electric, 25.03.13

3 Society of Motor Manufacturers and Traders, 05.09.18

4 BBC News, 09.07.18

5 Bloomberg, 18.09.18

6 Bloomberg New Energy Finance, 19.06.18

7 Jaguar, 02.10.18

8 ABB, 22.01.18

9 BP, 28.06.18

10 Royal Dutch Shell, 08.08.18

11 Reuters, 06.08.18


Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.



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