Technology: Electrifying Potential
29 November, 2019
The Bottom Line
- Electric vehicles continue to gain share around the world, but still represent a tiny fraction of new vehicle sales.
- Yet new estimates from global equity specialist Martin Currie suggest that electrical vehicles could account for more than 50% of global new passenger car production by the year 2030—and over 90% by 2040.
- Auto makers will face some hard choices along the way. Higher R&D and capital expenditures will be needed to keep up with rapid technological change and compete amid sharper competitive pressures.
- As a result, Martin Currie notes that the most attractive investment opportunities may be companies further up the value chain—such as producers of nickel, cobalt, aluminum and manganese (used in lithium batteries); cathode manufacturers serving battery integrators and companies involved in developing charging networks.
- Because these are niche businesses, there are companies within them that enjoy high barriers to entry, strong pricing power and attractive return on invested capital (ROIC) – all appealing traits from an investor standpoint.
Capital expenditures (Capex), also called capital spending, is an amount spent by a company to acquire or upgrade productive assets (such as buildings, machinery and equipment, vehicles) in order to increase the capacity or efficiency of a company for more than one accounting period.
Research and development (R&D) refers to the activities companies undertake to innovate and introduce new products and services.
Return on invested capital (ROIC) is the amount, expressed as a percentage, earned on a company’s total capital. It is calculated by dividing total capital into earnings before interest, taxes, and dividends.
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