Environmental sustainability has moved to the centre of the agenda for many institutional investors. Crunching numbers is no longer enough. Many fund managers and pension funds now use sustainability criteria to define their universe of investable securities. This is based on the conviction that companies that don’t place sustainability at the core of their operations will, in the long term, be unable to execute their business plans.
On the flip side, a commitment to environmental sustainability, if linked to genuine industrial expertise, is set the produce the global winners of the future. Germany’s manufacturing strengths and its commitment to electric car ownership are producing a virtuous, and investable, cycle of adoption.
The country’s ambitious goal is to become a leading market for and provider of electric mobility, and to put six million electrically powered vehicles on German roads by 2030. Rapid progress is already being made. Over the last year, the share of diesel vehicles in German new car sales has dropped sharply, from about half to 35%. Plug-in electric car sales more than doubled in 2017, with the momentum continuing this year, Germany's Federal Motor Transport Authority reported.
Motorists in Germany are being powerfully incentivized to make the switch. According to the European Automotive Manufacturing Association, German motorist can get €4,000 euros of subsidies for purely battery electric vehicles, and €3,000 euros for a plug-in hybrid. German purchasers of fully electric vehicles registered between 2011 and 2020 also benefit from a 10-year exemption from ownership tax. The Electric Mobility Act, which came into force in 2015, grants privileges to owners of electric-powered vehicles, which are identified by special E-license plates. These include priority parking spaces near charging stations, free or reduced-price parking, and exemptions from some access restrictions.
The paradigm shift is the result of a patiently constructed new consensus, orchestrated by the German National Platform for Electric Mobility (NPE). The government advisory body, set up in 2010, brings together representatives from industry, science, politics, unions and trade associations for strategic dialogue.
Investors are taking note of the results. The German index provider Solactive, based in Frankfurt, recently started The Autonomous Electric Vehicles Index, which tracks the market performance of producers of electric or hybrid vehicles. The index is used as the basis for the Global X Autonomous & Electric Vehicles exchange-traded fund, which is listed on the NASDAQ stock exchange. And the last 12 months has seen a spate of initial public offerings by innovative German clean battery producers.
Voltabox, which specialises in batteries for lifts, and Varta, which makes micro-batteries for home energy storage systems, both went public in October 2017. In June, Akasol, a maker of battery systems for buses, commercial and industrial vehicles, locomotives and ships, began trading after its IPO was oversubscribed.
Akasol buys lithium cells and adapts them to systems used by household names like Daimler, Alstom, Bombardier and Rolls-Royce. The company plans to use its IPO proceeds to double production facilities at its German site by 2020, set up a greenfield factory in the U.S. and expand R&D capacity. Analysts expect Akasol’s primary market, for hybrid and electric buses, to grow by up to 35% a year. The company is targeting annual sales of about 300 million euros within the next five years.
German exports are set to be revolutionized along with the domestic market. The historic big players are on board, alongside the new upstarts. Volkswagen aims to have 16 production sites for electric cars in operation by the end of 2022 and has signed contracts with international battery suppliers worth nearly $25 billion, covering the European and Chinese markets, showing an attractive investment from foreign capital within this field.
As retail fund investors are always warned, past performance is no guide to the future. Germany’s old automotive business model, which lasted for well over a century, of selling combustion-engine cars to private customers, is drawing to a close. In the context of the radically disruptive shift needed to make Germany climate-neutral by 2050, the past is firmly in the past. A ground-breaking German court ruling in February stated that cities can ban the most polluting diesels from city centres proving that the only way for electric vehicles is forward.