After years of political lobbying that undermined attempts to cut emissions and make vehicles cleaner, carmakers have pulled a handbrake turn on electric vehicles (EVs).
Ford and Volvo have promised that all their passenger vehicles will be 100 per cent electric by the end of the decade, while General Motors says that all its passenger cars will be emission-free by 2035.
Volkswagen may have resorted to an April Fool stunt — suggesting that it was changing its name to Voltswagen in the United States — to grab headlines but the carmaker’s EV plans are genuinely ambitious. It aims to sell one million electric or hybrid cars this year — a near tenfold increase on 2019 — and will open six battery factories across Europe by 2030.
This conversion has been prompted by regulators around the world taking action that will ultimately signal the death knell for the internal combustion engine. China has said that new cars must be electric, fuel cell or hybrid vehicles by 2035.
The UK has brought forward its ban on the sale of new petrol and diesel cars to 2030. Several EU countries have a deadline of either 2030 or 2040 for the end of sales of petrol and diesel vehicles, and President Biden is facing calls for the same. In the meantime, California has decreed that by 2035, all new cars and passenger trucks sold in the state will have to be emission-free.
Road transport accounts for 15 per cent of global CO2 emissions. Without drastic action, emissions from transport will rapidly increase as the global population grows and incomes rise.
Lacie Midgley, an analyst at Panmure Gordon, says: “In terms of electric vehicles, we are well past the tipping point. People know we have to move away from the internal combustion engine if we want to reach net zero goals.”
Sales of EVs duly rose by 43 per cent last year — even as worldwide car sales dropped 14 per cent — and growth is expected to accelerate dramatically when EVs become cheaper than conventional petrol or diesel cars.
TI Fluid Systems
Despite having plenty of vehicle manufacturing sites, the UK has few listed electric vehicle companies. Instead, there are some interesting suppliers, that will both drive and benefit from a shift to EVs.
TI Fluid Systems makes fuel tanks and the systems that carry fuel and other fluids, such as engine coolants, around the car. Electrification might sound like bad news for it, since 100 per cent battery-powered vehicles do not need fuel tanks.
In fact, TI says the opposite is true. It supplies content worth about €200 (£173) per vehicle running on an internal combustion engine but this will likely double for battery-powered electric vehicles owing to more complicated fluid handling. Hybrid cars could be worth even more to the company — up to €700 per vehicle — because they require a more expensive pressurised fuel tank and additional fluid handling systems to keep the battery at the right temperature.
This is not only hypothetical, the Oxford-based company has been winning contracts and will supply parts for 31 out of 46 EVs to be launched over the next two years.
Last year was brutal for car manufacturers and their suppliers and TI swung into the red with a pre-tax loss of £254 million. It furloughed workers and most of its salaried staff agreed to temporary pay cuts to help the business conserve cash during the coronavirus crisis. So TI came under fire for attempting to pay £27 million in dividends last year — a move that was ultimately blocked by its largest shareholder, Bain Capital.
It is expected to restart the dividend this year. TI is good at turning sales into cash and is targeting free cashflow of up to €1.3 billion from 2021 to 2025. Some €250 million of that is likely to go on dividends and TI is eyeing the possibility of acquisitions to add to its portfolio of products needed in EVs.
The shares are changing hands for 299p, which is about 16 times forecast earnings for the year. That looks cheap for a reliable engineer making inroads in EVs.
Advice Buy
Why Poised to benefit from the dramatic growth in electric vehicles
Impact Weaning us off the internal combustion engine
AB Dynamics
For a long time, electric and autonomous vehicles were seen as two sides of the same coin. Now many manufacturers have scaled back their investment into fully driverless vehicles, seeing the payback as too far in the future. The industry is, however, still investing in advanced driver assistance systems (ADAS), such as automatic cruise control. This is partly driven by regulation — in Japan, for example, automatic braking will be mandatory in new cars by the end of this year — and partly by consumer demand.
That is good news for AB Dynamics, which will see increased demand for its robots and software that test the durability and safety of vehicles. The business, based in Bradford-on-Avon, Wiltshire, supplies its technology to all the leading car manufacturers as well as industry bodies and regulators, such as the test labs for the European New Car Assessment Programme and the National Highway Traffic Safety Administration in the US.
AB was pummelled last year as carmakers reined in spending. That has, however, been delayed rather than cancelled and analysts expect sales to pick up again in AB’s next financial year, which begins in September. AB provides services for carmakers’ R&D units, meaning it is sheltered from any downturn in volumes of car sales and stands to benefit from the shift to EVs.
The shares are trading at £22, about 37 times next year’s earnings. Although highly valued, they are a way off their highs of more than £27 in 2019. For a highly profitable business with no direct peers in terms of listed companies, they are worth a look.
Advice Buy
Why Testing will only get more important as cars get more complicated
Impact Enhancing safety amid the electric revolution
