5 Reasons for Impact Investing

Reorganisation in the Automotive Industry:

VW reported record results in 2022 and 2023, but barely a year later the mood is one of crisis – there is talk of plant closures and redundancies. The other European manufacturers are not faring much better and are also facing capacity adjustments and restructuring. This has a lot to do with the planned switch to electromobility, which has stalled in 2024. Global EV sales rose by 22% in H1 2024, but the market in Europe is stagnating. Fiat, for example, had to reduce production of the 500e by 60% (DW.com).

A Competitive Edge

The blame for the crisis is universally attributed to poor policy: Too little support, too much support, pending ban on combustion engines, purchase premiums, CO2 limits, import tariffs, Chinese subsidies, etc. In our eyes, this perception is not wrong.

However, we believe that the main cause of the crisis is the eroding competitiveness of European car manufacturers, regardless of the type of drive. Asian competitors have become technologically equal, if you believe the (European!) test reports. In terms of production efficiency, they have an advantage anyway: at VW, employees generally work (only) 35 hours a week, but enjoy 6 weeks’ holiday and are sick for more than 5 weeks on average. So it’s easy to understand why, for example, VW employees work more than 5 weeks a week.

Unattractive OEMs, Waiting for Entry Opportunities

The transport sector is responsible for around a third of global energy consumption and is therefore an important fund theme. Nevertheless, we have kept our exposure to the automotive sector below the target level for years (currently approx. 12%). Automobile manufacturers (OEMs) and suppliers such as Continental are unattractive due to their high capital intensity. We are looking for opportunities primarily in the electrification of road and commercial vehicles (Lem, Infineon, Melexis, X-Fab, Sandvik). The electric drive plays an important role here, and new safety and comfort components are also increasing the demand for silicon. However, we are still holding off on acquisitions.

Rolf Helbling / Andres Gujan, 5. November 2024

Lithium is currently the most commonly used metal for batteries because it enables a relatively high energy density. However, sodium batteries are increasingly becoming an attractive alternative: Sodium is available in unlimited quantities as a salt of the oceans (sodium chloride NaCl) and can be extracted without causing environmental damage. Sodium batteries are also characterised by a high level of safety, as they are less flammable. However, sodium batteries also have disadvantages due to their lower energy density. They are more suitable for stationary applications.

Resourceful Researchers in a Race

Market forecasts from Bloomberg and McKinsey predict that the battery market will grow several hundred billion times over. The brightest minds are working with huge R&D budgets to eliminate the disadvantages of sodium batteries – low voltage and corrosion of the cathode (service life). In fact, great successes have now been reported. The first cars with sodium batteries are already on the road in China. The industry leader BYD is investing more than USD 1 billion in a large production plant. The other industry leader, CATL, wants to reduce the cost per kilowatt hour to $57 with a new generation of sodium batteries. A car battery would then cost less than $5,000. Research is going in various directions, and experiments are also being carried out with other inexpensive metals (magnesium, aluminium, zinc). There are great expectations for solid-state batteries, for example, which boast greater energy density and improved safety. The first factories are already under construction and should be supplying safe, high-performance batteries as early as next year.

Significance for Carnot

Battery prices have been falling slightly for years. However, with the emergence of new materials and technologies, a significant price reduction is now imminent. Due to the high capital intensity and major technology risks, battery production remains unattractive for us as investors. Nevertheless, the significant reduction in battery prices is relevant for us, as it makes the combination of renewable energy and storage cheaper. This triggers further investments in the conversion of the energy supply, where our portfolio companies are involved – from engineering, technology and installation through to system control and optimisation (AFRY, Concentric, ABB, etc.).

Did You Know?

700,000 tonnes of cheese are stored in American caverns. That is more than three times Switzerland’s annual production.