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RLAM's Fox: Do androids dream of electric cars?

RLAM's Fox: Do androids dream of electric cars?

Any decent history of electric vehicles would be amiss without covering first electric taxi services in New York and London.

To quote one article: ‘Electric cabs were cumbersome… and required a battery recharge every 25 miles that took eight hours to complete.’ Like many early stage inventions, applying radical technology to mass market products came with teething problems. However, fixing these problems has required a rather long dental appointment.

Both taxi firms were founded, not last century, but in 1897.

At the turn of the century, there were more electric vehicles sold in America than petrol ones. Back then the internal combustion engine, with its offer of cheap power from a fuel where production costs were shrinking rapidly, offered real innovation.

It has taken nearly 120 years of improvements in batteries and climate change concerns to return electric cars to the cutting edge. And for many investors looking to tap this fast growing market, one name stands out, Tesla.

A sustainable model?

However, here some circumspection is also due. While Tesla is certainly bringing electric cars to a mainstream audience with the new Model 3, the firm’s potential as a sustainable investment opportunity is far less clear.

Despite impressive revenue growth, the company’s debt has risen just as quickly, as has the fall in adjusted net income, while free cash flows at the firm are also in rocky waters.

Furthermore, we continue to screen out Tesla in our sustainable stock lists thanks to its corporate governance structure. This is despite investor pressure in the lead up to the merger with SolarCity Corp. Five of the six board members have personal or professional connections to chief executive Elon Musk, which could jeopardise their independence.

However, as the Paris Accords have spurred governments into action, almost every automotive manufacturer is ramping up development of some form of electric vehicle. This momentum is rapidly expanding the range of opportunities for those looking to capitalise on the second coming of the electric car.

Firms such as German semiconductor manufacturer Infineon, whose microchips help power the various parts of the electric car to talk effectively to each other, could see real benefits from this focus.

Another is French automotive parts maker Valeo, which constructs many of the essential drivetrain and electric motor components to be used in a range of electric vehicles.

The primary market is also seeing renewed activity, with another electric vehicle parts maker, TI Fluid Systems, set to IPO on the London Stock Exchange later this year.

While fund managers and other investors should analyse each on their merits, it is clear that the renaissance in electric power will yield a wide range of potential opportunities for sustainable investors, going far beyond any headlines about a few bright sparks.  

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