ELECTRIC CAR INDUSTRY
By 2040, the UK government will ban the use of all new petrol and diesel cars and vans amid fears that rising levels of nitrogen oxide pose a major risk to public health. The announcement is a milestone in the shift towards electric cars, which is an industry which has already seen significant developments over the past decade.
Global Annual Electric Car Sales
Source: Bloomberg, August 2017
A name which may not be familiar to you is Tesla. Established in 2003, it is now at the forefront of the electric car industry. It is currently the most valuable American car company, worth $52.5bn, giving them a higher market capitalisation than General Motors [GM]. This is an incredible demonstration of faith by investors! In their most recent quarterly update Tesla revealed they sold 22,000 vehicles in 3 months. To put this into context, in the same quarter Ford sold 1.7 million vehicles and General Motor’s 2.3 million vehicles. Investors are clearly anticipating a tectonic shift.
Behind the scenes this is causing a massive rethink. This week the Financial Times carried a story pointing out that Tesla is becoming a very serious threat to the immensely powerful German car manufacturers. The key to success though is not the car it is the battery!
Tesla’s Gigafactory is where its first battery cells will be rolling off production lines to power the company’s energy storage products. To counter this threat Terra E Holding Gmbh, assembled by a consortium of 17 companies, will begin to build its 34 gigwatt-hour battery factory. The project has been backed by the German government, which provided 5.2m euros in subsidies (part of a 1bn euro program committed by the German government to help incentives reaching 1m electric cars domestically by 2020) from Germany’s Ministry of Education and Research.
Other Governments are also committing support to the industry through subsidies and other incentives, realising the potential for this to be a game changer. Governments see the appeal of reducing air pollution and they also understand the importance of having competitive car companies vital to their economy being able to create jobs and to enhance tax revenues.
The International Energy Agency (IEA), which represents 29 oil-importing countries forecasts 150 million electric vehicles on the world’s roads by 2030, or about 10% of all passenger vehicles at that point. In comparison, only two million electric vehicles are operating today, 0.2% of the 1.2 billion. The impact of this will spin out to the energy sector in many different forms – demand for cobalt used in batteries will soar, the demand for oil will decrease and pressure on national grids to keep pace with increasing demand for electricity will present a second order challenge.
The opportunity for the UK car industry is vast, with the potential to gain a greater portion of the market and boost their domestic and international sales. However, they will need continued support from the government to remove barriers and help gain a competitive edge. The evolution of the electric vehicle industry should provide superior technology and increased efficiencies which should help sustain higher global economic growth in the future.
EUROPE CONTINUES ITS ECONOMIC RECOVERY
The European economy continues its road to recovery following the aftermath of the financial crisis and the subsequent Sovereign debt crisis. The economy grew at its fastest rate in six years. Perhaps the most positive part of this news is that the growth is coming from the troubled economies that were at the heart of the debt crisis. Spain’s factories are hiring workers at the fastest rate since before adopting the single currency and has contributed to Spain having the highest growth rate in GDP throughout the Eurozone, growing at 0.9% for the second quarter.
Consequently, GDP growth in the Eurozone is now at 0.6% from 0.5% in the second quarter of the year, with year on year expansion for the Eurozone of 2.1%, thus higher than most of its developed nations peers. Consequently, this has been positive for the UK exporting goods into Europe, which can be seen in the pick-up in its most recent PMI figures.
The UK Purchasing Managers Index (PMI) for manufacturing picked up for the first time in three months. PMI is an economic indicator derived from monthly survey of private sector manufacturing companies, giving insight into the level of activity in the manufacturing sector. A reading above 50 shows signs of expansion, and conversely a reading below 50 represents contraction. The latest PMI provided by ‘Markit’ rose to 55.1 from 54.2. The headline figure was boosted due to higher levels of production, improved job creation and an acceleration in new orders.
The spill over from the continuous improvement in the European economy is not only being felt in the UK but globally too. As can be seen from the recent increase in the National Institution for Economics and Social Research’s [NIESR] forecast for Global Growth this year from 3.3% to 3.6%.
Real GDP Growth YoY%
Source: Bloomberg, August 2017
Your capital is at risk. Investments can fluctuate in value and you may not get back the amount you invest. Past performance is not a guide to future performance. Tax rules can change at any time.