Change is afoot in the global automotive industry. Some of the world’s biggest economies have promised to ban cars that run without electric power by 2040 – and others are expected to follow suit. In a three-part series, we explore one of our impact investment themes – future mobility – by highlighting companies leading the charge towards cleaner, intelligent, connected and autonomous mobility.
Today, governments are rushing to limit the use of fuel sources that have dominanted the automotive industry, amid greater efforts to make the global economy less carbon-intensive.
France has pledged to ban the sale of diesel and petrol cars from 2040, the UK is planning a ban on the sale of most hybrids and all petrol and diesel cars by 2040, and India and Germany are targeting 2030 to impose similar bans. And by 2025, China wants 20% of its new cars powered electrically. Other governments are expected to follow suit.
The industry is also taking steps to meet ever-tightening emissions regulations. In May, Nissan announced plans to phase out diesel engines from its cars in Europe, while Rolls-Royce plans to only produce electric cars by 2040.
Future mobility: cleaner vehicles
At Hermes, our investments in the Hermes Impact Opportunities Fund are aligned with eight impact themes, which are in turn aligned with the United Nations Sustainability Development Goals. Each theme helps us to define, validate and report on positive corporate impacts.
One such theme is future mobility – that is, improving the efficiency of vehicles and increasing the use of low-carbon transportation. A sub-theme of future mobility is that vehicles will have to be cleaner in the years to come, emitting less carbon and fewer pollutants.
Global carbon dioxide emissions have almost doubled since 1990 – and transportation is responsible for 25% of this volume. And as global goals on reducing sales of internal-combustion engines are implemented, the adoption of electric vehicles (EVs) should accelerate significantly, especially in urban centres, where the appetite for EVs and supporting infrastructure are strongest.
Figure 1: Charging up: the growing EV fleet
Source: Bloomberg New Energy Finance as at February 2016
Global EV sales are expected to pass 14m by 2025 from the current level of 1m. And demand for the batteries powering EVs will keep pace with this trend, fuelling a surge in the consumption of battery materials and thereby benefiting companies that manufacture components for EV batteries. One such company is current holding Umicore.
Figure 2: Expected EV battery demand for the next 12 years
Source: Bloomberg New Energy Finance as at February 2016
Umicore: powering a future in EVs
The Belgian company has a dominant position in the battery-materials market. One in five lithium-ion batteries ever produced for portable electronics contains materials from Umicore, which focuses on developing technology for cathodes – the component that is the key determinant of a battery’s performance characteristics.
Umicore should benefit from the proliferation of lower-end mobile phones in emerging markets and the rise of electric bicycles. What’s more, the company’s management team is aware of the significant potential market in domestic energy storage units that capture energy generated by renewable energy sources within households.
What excites us most about Umicore are its cathode materials technologies for NMC batteries: the ultra-modern nickel, manganese and cobalt devices that are now seen as crucial for the viability of EVs. And it is targeting this emerging-growth opportunity in the following ways:
- Recycling: Technological advancements are key to retrieving more waste metal from batteries. Last year, Umicore announced plans to scale up its technology to recycle used lithium-ion batteries, which could cut down the energy footprint of mining raw materials, thereby driving sustainable prosperity for the planet. Using this technology, it also recycles electronic devices to retrieve gold and palladium content, which is becoming increasingly important as demand for EVs increase.
- Emissions-control technolgies: Umicore’s catalysis division manufactures emissions-control technologies enabling petrol- and diesel-fuelled vehicles to release the toxicity of their exhaust fumes.
- Cathode technologies: The widespread adoption of EVs will ultimately tackle emissions and air quality problems. But concerns about driving range and battery life currently hamper the adoption of EVs. Umicore’s cathode technologies can play an integral role in providing a solution. The quality and reliability of the company’s NMC cathodes both surpass those of competitors, allowing it to seize opportunities that lie ahead. But continued research and development in car-battery chemistry is necessary to make EVs a viable choice for consumers – and allay their fears that such vehicles have insufficient range.
Wheels in motion for low-carbon economy
The Hermes Impact Opportunities Fund seeks strong long-term returns from purposeful companies with innovative solutions to society’s underserved needs.
Umicore is a business that is positioned on the right side of a fundamental change in the needs of society and the environment: it is pioneering technologies that will power cleaner vehicles.
Today, demand for cathodes outstrips supply and Umicore is investing heavily in this area. Moreover, recycling will become increasingly important as demand on the world’s resources becomes more constrained.
Umicore’s innovative solutions to tackling emissions and air quality are making our roads cleaner, and contributing to efforts to transition to a low-carbon economy.