Imagine: Never again will you go to sleep worried about stopping at the gas station on your way to the office the next morning. You simply plugged in your car to a battery in your garage that extracted all its power from nothing more than the sun. Your car is now fully independent of the power grid and gasoline.
While the first electric vehicles (EVs) date back to the mid- to late-19th century, it was well over 100 years before a fully electric mass-produced vehicle made economic sense. The technological headwinds hampering EVs for so many years are now becoming tailwinds. Due to major advancements in technology, the EV ecosystem is now providing the ability and economics to produce these cars at scale.
In 2018, electric passenger car sales were up 63%, globally, to over two million units.1 There are now more than five million of these vehicles on the road, which only accounts for 0.5% of the world’s light vehicles. We believe there is a lot growth ahead!
As investors, where there is long-term sustainable growth, we look for opportunity. And with EVs, we are finding opportunities in many shapes and sizes, across industries and geographies, that tap into this major shift in automotive technology.
Earth’s Brightest and Cleanest Source of Energy
Every year, the amount of energy from our sun that impacts the earth is more than 7,500 times larger than the amount of energy the entire human race uses in any given year.2 In the long run, as we learn to harness this solar radiation to satisfy our needs, we’re going to have a glut of nearly free energy. Substantial progress has already been made toward this appealing vision of the future, and one of the biggest impacts it will have is on the adoption of EVs.
Like most technology, solar power has, over time, become more affordable. For something that, at one time, only made economic sense with a government subsidy, the cost of solar has dropped precipitously. Like the well-known Moore’s Law (stating that computing power doubles every two years while costing half as much), solar shares a similar phenomenon. As the cost of solar panels continues to drop, solar energy will gain in popularity and further support the cost efficiency of EVs.
Not only does solar energy eliminate gasoline expenses, it also allows new EV owners to lower their electric bills. It’s a virtuous cycle that fuels (pun intended) demand for solar. Solar is one stop along the EV value chain that offers investment opportunity. For example, First Solar was one of the first to enter the solar panel market and, as a result, has significant scale and a first-mover advantage on competitors. While First Solar provides the panels that extract energy from the sun, that energy is not ready to run your home or charge your car. Companies such as Schneider Electric have the products and services to enable us to consume the sun’s power by converting it to usable energy and storing it.
Fewer Parts, Fewer Problems
You may want to think twice about becoming a car mechanic. With far fewer parts and no oil or gasoline to muck-up the engine, EVs will need much less maintenance and repair than internal combustion engines. As an example, some internal combustion engines boast 1,200 individual parts and can weigh over 400 lbs! Compare that to a leading electric engine that has only 50 individual parts and weighs 70 lbs and you have a much less complicated vehicle on your hands. Plus, no more trips to your local emissions test site, ever.
With a complete change in the engine comes an evolution of the typical auto parts supplier. The guts of vehicles today and the EVs of the future look significantly different “under the hood” compared with the previous century of auto parts. There are more electronic parts, semiconductors, and little electric motors that make up the puzzle pieces of these New Age vehicles. Nidec, a Japan-based company, develops and manufactures electric motors. Historically, their motors used in vehicles were applied to simple functions, such as moving a seat back and forth or for a side-view mirror. However, Nidec is now developing motors that can individually control each tire on a car.
The Supporting Cast
Not all companies in the EV value chain have their parts directly in a vehicle. But there are products and services that support the manufacturing process, which is equally important. Take a company like Aumann, which develops machinery that automates the process to spool copper wire. Spools of copper wire that can be up to one-mile long are a necessary part of the electric motor. These spools are crucial to convert electric energy into mechanical energy. Without Aumann’s industrial technology equipment, the spooling process would be done by hand. With it, the process is considerably more scalable for EV manufacturers, and consumers end up with a smoother ride than can be produced by hand-spooled coils.
The Road Ahead
Growth in EVs is inevitable. Besides the obvious environmental benefits, this growth will happen for purely economic reasons. Improvements in battery efficiency, the cost savings of cheap solar energy over gasoline, and the simplicity and durability of an electric drivetrain will all contribute to making EVs the go-to choice for consumers in the not-too-distant future.
Legacy auto manufacturers are allocating more resources to EVs, and new entrants into the auto market are dedicated to overthrowing the internal combustion engine. With that, over the coming years we will see many new models hit the market. From the parts suppliers to the equipment companies and those supporting the infrastructure to charge EVs, investment opportunities will be abundant.
- ^“December global electric vehicle sales set new record: S&P Global Platts data,” S&P Platts Analytics, 2/11/19.
- ^World Energy Council, World Energy Resources: Solar, 2013.
As of 3/31/19, First Solar represented 1.31% of Oppenheimer Global Opportunities Fund’s holdings; Schneider Electric represented 0.49%; Nidec 0.48%; and Aumann 0.39%.
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