The recent spate of announcements from some of the largest automakers suggests that electric vehicles (EVs) may soon become more commonplace on our roads.
Since mid-January, General Motors Co. GM-N has made a $1-billion investment in its CAMI Assembly Plant in Ingersoll, Ont. to make commercial EVs, struck a partnership with Microsoft Corp. MSFT-Q and Honda Motor Co. HCM-N to build the software and interfaces that will run EVs, and set a goal that all GM vehicles will be emissions-free by 2035. Ford Motor Co. F-N announced a partnership with Google for its cloud and artificial intelligence expertise. And in October, 2020, the former Fiat-Chrysler Automobiles NV (now Stellantis NV STLA-N) announced an investment of $1.5-billion in its Windsor, Ont., assembly plant to make EVs.
For investors, batteries and related charging technology represent an interesting opportunity. Batteries are the single most expensive component of EVs – about 25 per cent of the total.
Rene Reyna, head of thematic and specialty product strategy at Atlanta-based asset manager Invesco Ltd., quips that “EVs are sometimes referred to as a battery with four wheels.”
Although the cost of batteries has fallen dramatically, it must come down further to make prices comparable to gas-powered options, says Elliot Johnson, chief investment officer at Evolve Funds Group Inc. in Toronto. He notes that between 2010 and 2020, the price of a kilowatt-hour of capacity in an automobile battery pack dropped by 87 per cent to US$156 from US$1,160.
But for EVs to become mainstream, two other things must improve, he says: Battery storage capacity must rise to extend the distance between charges and charging speeds must get faster.
Both are critical because they play to the fear among EV buyers dubbed “range anxiety,” which is the worry that a car will run out of charge before they can find a place to plug it in, leaving them stranded. In addition, buyers also worry about how long it will take to get back on the road if they do find a charger.
“A big part of the gain is going to be in charging infrastructure,” Mr. Johnson says. “There’s a huge amount of research going into it.”
In a sign of the times, Israel-based lithium-ion battery company StoreDot Ltd., which counts BP PLC BP-N and Daimler AG as strategic partners, has manufactured the first battery for EVs that can be charged in five minutes. That’s a step toward making recharging as quick as a fill-up at the gas station.
Evolve Automobile Innovation Index Fund CARS-T holds companies developing EV drive trains, autonomous driving, and network services. It has $96-million in assets under management (AUM) and is managed passively, with 44 holdings.
Some of the holdings overlap with Invesco’s clean-energy exchange-traded funds (ETFs), which have a broader emphasis. Invesco WilderHill Clean Energy ETF PBW-A has a North American focus while its Invesco Global Clean Energy ETF PBD-A is more global. Both are managed passively, with Invesco Wilderhill Clean Energy ETF holding 56 companies, of which about 25 per cent are in battery and related technologies. It had US$2.2-billion in AUM as of Jan. 31.
Evolve Automobile Innovation Index Fund and Invesco WilderHill Clean Energy ETF have been strong performers, with the former producing a total return of 122.6 per cent in the 12 months ended Jan. 31 while the latter has had a total return of 206 per cent in the same period.
One area to keep an eye on, Mr. Johnson and Mr. Reyna say, is the development of batteries to be used in electric long haul trucks. The technology doesn’t exist as it should yet because the lithium-ion batteries used in cars don’t do the job. For now, they would be too large and too heavy to pull the loads and would also take too long to charge.
The solution might be some form of fuel cell, possibly hydrogen, which produces electricity by a reaction between hydrogen and oxygen-producing electricity and water vapor. Fuel cells offer better mileage and are faster to refuel than batteries.
Mr. Johnson and Mr. Reyna say that China is the global leader in battery technology, with Europe a distant second.
“China has had a huge focus on batteries and it has really paid off,” Mr. Reyna says. “It manufactures about 77 per cent of all battery cells and 60 per cent of battery components. No one is really close.”
Both funds hold Nio Inc. NIO-N a China-based electric carmaker that wasn’t in business when Evolve launched Evolve Automobile Innovation Index Fund in 2017. Nio opened its doors in early 2018 and has reached a market capitalization of US$9.2-billion in three years.
The Evolve and Invesco ETFs hold Fuelcell Energy Inc. FCEL-Q, one of the largest North American fuel cell power companies. Another is Vancouver-based Ballard Power Systems Inc. BLDP-T, which is involved in fuel cell development and commercialization.
Both Mr. Johnson and Mr. Reyna see massive potential in this space.
“We’ve reached a tipping point at which owning an electric vehicle is becoming extremely attractive,” Mr. Johnson says. “If we have this conversation in a year or two, these trends will only be further along.”
Mr. Reyna, for his part, adds that “If the market share of EVs in North America is 2.6 per cent today and you want net-zero [carbon emissions] by 2035, the conversion is going to be massive.”
Adam Mayers is a contributing editor to the Internet Wealth Builder investment newsletter.