Thursday 5th August 2021 signalled a significant day in American policy, with Biden signing an executive order calling for half of new vehicles sold in the US to be electric by 2030 as part of plans to slash transport emissions. Not only do we believe this is a step in the right direction for the planet, but the additional investment into the green sector and job creation could also be the triple win we all need right now.
The US is currently the world’s second largest greenhouse gas emitter and has lagged China and Europe in the take-up of electric vehicles (EVs). In the US EVs comprise about 2 per cent of the market and Tesla dominates sales, against about 6 per cent in China, 10 per cent in Europe and 11 per cent in the UK.
What targets are being set for the auto industry in other parts of the world?
Globally, transport accounts for about 29 per cent of US emissions, more than any other sector, making it a key element to any plan to cut greenhouse gases. The EU also toughened its emission standards in its latest policy announcement, amounting to an effective ban on sales of all new diesel and petrol cars by 2035. The UK aims to end the sale of all new petrol and diesel cars by 2030.
What could these policies mean for the EV investing theme?
With a huge gap to be closed based on the current percentage of EVs sold globally versus the target of 50-100% of sales by 2035, governments are likely to increase the amount of spending and subsidies available to this sector over the coming decade. More money will likely be spent by these major car companies in R&D, and the resources needed to build EV charging stations could become an investable theme.
Where do the individual car brands stand when it comes to these targets?
Tesla is already producing 100% of its fleet as electric vehicles, so it is strategically set up to meet these future policy targets. GM said in January that it would aim to stop manufacturing petrol powered cars by 2035, the first of the big carmakers to set a target. Ford said in May 2021 that 40 per cent of its global car sales would be electric by 2030. Tesla, GM and Ford are all components of the S&P500 Index, and IVV, the Blackrock Australian Listed ETF tracking the S&P500, is in seven Raiz Portfolios. This means that if you have a Raiz portfolio containing the IVV ETF, you are already investing in some companies who are striving to cut emissions relating to transportation.
Ford is also in the ETHI ETF, available in our socially responsibly themed Emerald Portfolio, meaning all Raiz Portfolios have some available exposure to companies looking to move the transportation dial in the correct direction.
Does it matter to investors where the electric vehicles are produced?
Biden framed his electric vehicle push as a matter of winning the market back from China, which produces triple the number of electric vehicles as the US each year. “We’re in competition,” he said. “To win, we’re going to have to make sure the future is made in America.” But from a green investor point of view, it does not really matter which country wins. In a perfect outcome, this investment will generate billions of dollars in cashflow, job creation, and lead to better environmental outcomes. That would be the win, win, win.
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