Responsible and Innovative Mobility: Transforming The Way We Get Around
In cities that are often saturated and polluted, economic players are grappling with the challenge of mobility and are endeavouring to come up with new transport solutions.
The challenge of more efficient mobility offers investment opportunities across the whole value chain. This theme addresses all responsible mobility solutions (urban, logistics, individual and shared transport).
Geographical region: worldwide. Both Emerging Market and developed economies are concerned.
Asset class: an investment in the stock markets via funds and individual securities. Many sectors of the economy are involved: Materials, Industrials, Technology and Consumer Staples.
Risk profile: investing in the innovative mobility theme means accepting an above-average risk. Most sectors in which this theme invests are cyclical.
Investment horizon: long term
The growing challenges of travelling call for new reflections on mobility. The fight against pollution and the increasing traffic congestion in city centres have prompted economic, private and public players to reinvent new means of transport. Solutions now lie in technological innovations.
Innovations in mobility
Driven by growing ecological demands, the automotive industry is undergoing a major transformation. Electric cars are booming, representing a larger slice of manufacturers' revenues. Electric power is becoming an important challenge for them, especially as newcomers are emerging on this segment. The penetration rate of electric vehicles will account for more than 15% of the European market by 2025 (Exane, September 2018).
Meanwhile, cheaper individual means of transportation are riding the wave of this new sales momentum thanks to electrification (e.g. bicycles, scooters).
Another challenge for the near future will be the development of self-drive vehicles. Many technology companies are already investing in this strategic business by rolling out sensors, cameras, software and electronic components that are part of the production chain. Finally, in the business world, electric trucks and delivery drones are fine examples of innovation.
Plans to build "smart cities"
Cities are expected to become increasingly sprawling, polluted and congested. Investing in better quality urban services has become an absolute necessity. Public authorities have the task of creating cleaner and less noisy public transport (trams, underground trains, high-speed trains), but also "smart" transport (traffic management) which should make transport more efficient.
In addition, they must provide infrastructure to facilitate the use of electric vehicles by individuals. Moreover, with or without the support of public authorities, private companies are innovating by rolling out new mobility solutions (e.g. carpooling services).
How to invest in mobility
We recommend investing in the mobility theme through individual stocks and investment funds. Our solutions are positioned across the whole value chain. Upstream, demand for specific materials for manufacturing new vehicles (lithium, nickel and cobalt for electrical batteries), suppliers of electricity and recharging infrastructure, suppliers of electrical equipment, electronic components and software are concerned. Finally, at the other end of the value chain, manufacturers of innovative vehicles, but also end services offered to consumers (e.g. carpooling) will onboard new trends in transport.
In terms of geography, mobility is a worldwide issue. Both developed countries and Emerging Markets face pollution and congestion challenges in cities.
In conclusion, despite cyclical downturns, in our view, the mobility theme is a long-term trend in the financial markets. Investors will benefit from opportunities in a wide range of sectors that are often cyclical (Automobile, Semiconductors, Software, Hardware, Manufacturing), but also defensive (e.g. electricity producers). When stock markets consolidated in October 2018, this theme become more attractive thanks to its valuation. The price/earnings ratio of the Kensho Transportation Index (US stock market index linked to innovative mobility) fell to 14, versus 16 in September 2018.
Industries in this theme are cyclical. A sharp economic downturn could change the theme’s potential though.
Some components of this theme may depend on public initiatives (e.g. tax incentives), which are in turn dependent on the budgetary capacity of public authorities.
Extremely low oil prices could reverse demand for innovative means of transportation.
One part of the value chain that is not immune to ecological scandals is the extraction of raw materials used in batteries.