Technological progress and broader pressure to deal with pollution – climate change – are rapidly conspiring against the internal combustion engine (ICE).
Few will have failed to notice the tectonic changes affecting the auto industry.
China recently announced its ambition to ban the production and sale of diesel and petrol vehicles, even if it has not set a specific timeline yet. This followed commitments by a host of other countries, including the UK and France – both aiming for a phase-out by 2040. Judging by developments, the future now looks increasingly electric.
Tesla is clearly the poster child here, having provided a compelling ‘proof-of-concept’, but one is hard pressed to find an automaker that its not aggressively ramping up efforts in the electric space – at the start of the month Jaguar Land Rover announced that every new model line will be electrified by 2020. This came not long after Volvo’s announcement of an ambitious global electrification strategy.
As long-term investors Martin Currie pay significant attention to secular change. The trend away from internal conbustion engines is of significant consequence across a range of dimensions, including auto supply chains, oil demand, infrastructure and, of course, for the business models of the automakers themselves.
Electric cars have less moving parts (require less servicing) and the related move towards autonomous driving is shifting focus away from hardware to software and experience.
Identifying the winners and losers of this transformation is not entirely straightforward, of course, but Martin Currie is intensifying its efforts to map the implications both for existing and prospective investments.