In the fast lane: Electric vehicles and the automotive technology revolution | BetaShares

In the fast lane: Electric vehicles and the automotive technology revolution

BY BetaShares ETFs | 19 January 2022
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In the fast lane: Electric vehicles and the automotive technology revolution

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The roads of tomorrow will look nothing like those of today.

Reflecting rapid technological innovation, the global automotive sector is on the cusp of profound change over the next few decades. These changes include the transition to low-emission electric and hydrogen-powered motors, automated driving, and car-sharing arrangements.

Australian investors can now consider the BetaShares Electric Vehicles and Future Mobility ETF (ASX Code: DRIV), which has been designed to provide exposure to some of the world’s leading companies involved in the automotive technology thematic.

The climate-driven boom in electric car sales

The transition from fossil fuel-based internal combustion engines to electric motors and battery power is a critical means by which the world will aim to reduce carbon emissions over the next few decades.

Based on existing government carbon abatement policies, the International Energy Agency (IEA) estimates electric vehicle sales could rise from around 3m units in 2020 to 25m by 2030. If governments accelerated their efforts to deal with climate change, electric vehicle sales could reach 45m units by 2030, or just over one third of total vehicle sales1. These projections imply growth in electric vehicle sales of 25 to 30% p.a. over the coming decade.

Global EV sales by scenario 2020-2030

Source: IEA analysis developed with Mobility Model. Graph shows projections. Actual outcomes may differ materially from projected outcomes.
Notes: PHEV = plug-in hybrid electric vehicle. BEV = battery electric vehicle. EV sales share = share of EVs (BEV+PHEV) out of total vehicle sales. PHEV share in EVs = share of PHEV sales out of EV (BEV+PHEV) sales. The regional breakdown of these figures by vehicle type can be interactively explored via the IEA’s Global EV Data Explorer.

According to the IEA, this degree of switching from internal combustion engines to electric powered vehicles by 2030 could reduce emissions from car use by up to two thirds (under their Sustainable Development Scenario).

Net reduction of Greenhouse Gas (GHG) emissions from EVs increases over time

Net reduction of GHG emissions from EVs increases over time

Note: Mt CO2-eq = million tonnes of carbon-dioxide equivalent; LDVs = light-duty vehicles; ICE = internal combustion engine. Well-to-wheel emissions include those from fuel production and vehicle use, but not vehicle manufacturing. Positive emissions from the global EV fleet (BEVs and PHEVs). Negative emissions are those that would have been emitted by an equivalent ICE vehicle fleet. The red dot denotes GHG emissions savings from EVs in comparison with an equivalent ICE fleet. Regional well-to-wheel GHG emissions data can be interactively explored via the Global EV Data Explorer.
Source: IEA analysis developed with the Mobility Model using the carbon intensity values from Energy Technology Perspectives 2020 for both scenarios. Graph shows projections. Actual outcomes may differ materially from projected outcomes.

Technological improvements in passenger comfort and safety

Parallel to the climate-induced need to transition to lower emission modes of transport, technological innovation is also on the cusp of delivering passengers vastly improved comfort and safety features.

The most obvious improvement is the transition towards fully automated (driverless) car technology, which would avoid the safety problems associated with driver fatigue or error – and free up time for leisure and work activities whilst in transit.

Indeed, the car cabins of tomorrow may well evolve into mobile offices or lounge rooms, equipped with the latest in communications and entertainment technology. These opportunities will likely see even greater use of semi-conductors and increasingly sophisticated high-tech component parts throughout the cars of the future.

According to estimates from Goldman Sachs Global Investment Research, the average value of semiconductors used within the standard car could grow by a factor of seven in the transition to fully-automated driving. In turn, Goldman Sachs estimates that could see the market for semiconductors within the automotive industry grow to around $2.5b by 2030, implying annualised growth of 25%.

A related opportunity is the shift to shared mobility schemes or pay-to-drive systems that reduce the need for individual car ownership. Improved convenience and affordability could see more intensive use of the stock of cars over time. Current ride-sharing companies such as Uber are already well placed to move into these areas, and innovative car manufacturers such as Tesla could develop shared mobility systems of their own.

Exposure to leading global automotive innovators

The index which DRIV aims to track provides exposure to up to 50 of the leading automotive technology companies around the world.

To qualify for index inclusion, companies must be operating in at least one relevant industry segment, such as batteries and alternative fuel, innovative driving technology, or hydrogen power.

Current index constituents include both well-known and successful companies such as Tesla and Uber, and equally innovative but lesser-known names such as Aptiv, NIO and Paccar.

Top 10 Companies in DRIV’s Index: 14 January 2022

TESLA INC 10.0%
UBER TECHNOLOGIES INC 6.9%
APTIV PLC 6.2%
NIO INC 6.0%
VOLKSWAGEN AG 5.7%
VOLVO AB 5.2%
PACCAR INC 4.7%
BYD CO LTD 4.0%
XPENG INC 3.8%
LI AUTO INC 3.8%

Source: Bloomberg. No assurance is given that these companies will remain in the index or will be profitable investments.

From inception in May 2017 to end November 2021, the Index which DRIV aims to track has delivered annualised $A returns of 23.5%, compared with 14.3% for the MSCI World Ex-Australia Index.

DRIV Net Performance - November 2021

Source: Bloomberg, BetaShares. DRIV aims to track the Solactive Future Mobility Index before fees and expenses. Past performance is not an indicator of future performance. Does not take into account ETF’s fees and costs. You cannot invest directly in an index. The Index’s returns can be expected to be more volatile (i.e. vary up and down) than a broad global shares exposure, given its concentrated sector exposure.

Summary

Climate change and technology are two key dynamics that seem likely to drive major investment opportunities in the automotive sector in coming years. Electric powered driverless cars available anywhere anytime could be the future of motoring, making travel not only more convenient and pleasurable, but also better for the environment.

The BetaShares Electric Vehicles and Future Mobility ETF (DRIV) aims to provide a cost-effective and easily accessible way to gain exposure to some of the leading innovators in automotive technology.

There are risks associated with an investment in DRIV, including market risk, sector risk, international investment risk and concentration risk. DRIV’s returns can be expected to be more volatile (i.e. vary up and down) than a broad global shares exposure, given its more concentrated exposure. DRIV should only be considered as a component of a diversified portfolio. For more information on the risks and other features of DRIV, please see the Product Disclosure Statement available at www.betashares.com.au. A Target Market Determination (TMD) is also available at www.betashares.com.au/target-market-determinations.


1. The first projection is based on what the IEA call their Stated Policies Scenario (STEPs), while the second scenario is based on their Sustainable Development Scenario (SDS).

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