At WHEB, we’re big fans of battery electric vehicles (BEVs). Approximately 8% of the strategy is invested in companies with exposure to BEVs and their value chains. We have also recently launched a scheme internally enabling the WHEB team to have easier and cheaper access via a BEV leasing scheme. But outside our organisation, some people remain unconvinced. In this month’s commentary, Head of Research Seb Beloe explains our position.

Global stock markets rebounded in October. As in recent periods, macroeconomic concerns such as inflation and interest rate expectations played a big role in market movements.  There has been a subtle shift in the narrative as fears of recession have increased.  Although a recession will put downward pressure on company earnings, it would also support less aggressive interest rate increases (seen as positive for stocks).

Top Holdings (alphabetically)

Ansys

United States

Information Technology

Ansys is a market leader in multiphysics engineering simulation software for product design and optimisation. The company follows a strategy of Pervasive Engineering Simulation to enable innovation. Its software accelerates product time to market, improves engineering and optimises product quality and safety for a variety of products including fuel efficient cars and planes, wind turbines as well as medical technology and consumer products.

Autodesk INC

United States

Information Technology

Autodesk is a global leader in 3D design and engineering software and services. Its products are used by architects, engineers and designers to design, develop and manufacture and operate a vast range of products, buildings and services. Autodesk tools are a critical component in the design and operation of more resource efficient products and buildings. They can deliver quite striking resource savings, due to their impressive capabilities and critical position in design process. The product brands include Autodesk 360 cloud services, AutoCAD civil 3D and LT, 3Ds Max, Maya, and Revit.

CSL

Australia

Health Care

CSL develops medical products for serious and life-threatening diseases. Its core business is as a provider of human blood plasma-derived products to treat bleeding disorders, rare and serious infections and autoimmune diseases. CSL also manufactures vaccines and related products, including for flu and cervical cancer, as well as other products that speed up recovery times for patients that have undergone heart surgery, organ transplants and burns. The company provides these solutions across North America, Europe, Asia, Australia as well as other parts of the world.

Danaher

United States

Health Care

Danaher is a diversified business that designs, manufactures and sells laboratory equipment and consumables to clinical and medical laboratories including microscopes, analytical software and imaging and molecular devices. These tools are used in the development of new drugs and for diagnosing critically ill patients. In addition, the company also designs, manufactures and sells equipment to test and treat water (incl. UV water treatment systems). Overall, Danaher's products offer improved efficiency and reliability.

Globus Medical Inc

United States

Health Care

Globus Medical is a best-in-class spinal medical technology company headquartered in Pennsylvania, US. It has a large portfolio of solutions to promote healing in patients with musculoskeletal disorders. A newer, fast growing segment called "Enabling Technologies" centres around ExcelsiusGPS, the world's first robotic navigation platform which supports surgeons in spinal operations. The company was founded in 2003.

Icon

United States

Health Care

ICON is a clinical research organisation (CRO) which provides outsourced development services on a global basis to the pharmaceutical, biotechnology and medical device industries. The company's mission is to accelerate the development of drugs and devices that save lives and improve the quality of life. ICON specialises in the strategic development, management and analysis of programmes to support all stages of the of the clinical development process.

Linde

United States

Materials

Linde Plc produces and distributes industrial gases. The company operates globally supplying oxygen, hydrogen and other gases to a very wide range of downstream markets including into manufacturing industries, petrochemical and electronics industries. The gases are used in a variety of applications including in making manufacturing processes more efficient and in reducing harmful emissions. The company is establishing a strong presence in the green hydrogen market and also sells oxygen and other gases into the healthcare sector.

TE Connectivity

United States

Information Technology

TE Connectivity is a US-based manufacturer of electronic components and wireless systems. The company's main market is the automotive industry where its products are used to improve safety and fuel efficiency through increased levels of automation and electrification. The company does also sell products into industrial and telecommunications markets where they are often used in applications to help improve energy efficiency and safety.

Thermo Fisher Scientific

United States

Health Care

Thermo Fisher Scientific is one of the largest suppliers of analytical instrument, equipment, consumables and software for healthcare and environmental research, analysis, discovery and diagnostics. The company offers a very wide range of products and services including the equipment needed to analyse samples as well as the variety of containers and other consumables needed to handle them.

Trane Technologies PLC

United States

Industrials

Trane is a world leader in air conditioning systems and services. The company serves engineers, contractors and business owners across an array of markets including education, healthcare, government and manufacturing. It also provides climate-controlled transport solutions to the food and medical industries. It also has an offering in the heat pump space which brings a 300% efficiency gain compared with the system it would replace.

Global stock markets rebounded in October. As in recent periods, macroeconomic concerns such as inflation and interest rate expectations played a big role in market movements.  There has been a subtle shift in the narrative as fears of recession have increased.  This would support less aggressive interest rate increases, seen as positive for stocks.

On the other hand, from a fundamental perspective, a recession will put downward pressure on company earnings.  Because of this balancing act between economic data and earnings risk, markets continued to be volatile despite the overall upward move.

Our Fund returned 6.9% versus the MSCI World which returned 7.8%. Stronger performance in the Sustainable Transport theme was offset by the returns of our Resource Efficiency and Health themes.

Several names within the Sustainable Transport theme were positive and Infineon was the strongest contributor among them. The company makes power semiconductors with a market leading position in the automotive end market where electrification and automation are key long-term growth drivers. The stock has been weak year-to-date and was volatile over the month but performed positively overall. The company provided an update on the automotive division, highlighting a positive outlook that should support growth despite the weaker macro conditions.

Within Resource Efficiency, Silicon Laboratories was the largest contributor to relative underperformance. The company produces semiconductor components that enable wireless connectivity with a focus on applications on the Internet of Things. Semiconductor stocks in general have come under pressure as the market is cautious about demand in the near term, particularly in consumer-related end markets. The company reported a strong quarter but guidance for the full year was weaker, reflecting normalising demand after a very strong growth period.

CSL, a pharmaceutical company that produces plasma and plasma-derived therapies, was the main negative contributor to the Health theme.  It uses plasma to create specialist treatments for rare and orphan diseases, helping patients who face really debilitating diseases. The cost of collecting plasma has increased significantly as Covid restrictions resulted in reduced hours of operation and lower numbers of donors allowed in collection centres. These higher costs are putting pressure on margins, and there is uncertainty about how long that will continue. More positively, the company held an investor day to introduce the recently acquired Vifor business. This provides additional growth opportunities in complementary and impactful areas such as kidney disease.

Overall, the start of the earnings season has highlighted pockets of weakening demand. We are also seeing attention start to turn to 2023 where companies are generally flagging a lack of visibility on growth rates as we come out of the post-Covid boom. We expect volatility to continue, particularly in response to any commentary relating to cost pressures or any signs of inventory destocking.

The portfolio is unlikely to be immune to the industrial and consumer demand environments. However, our holdings are well positioned for resilience in a downturn, and importantly, to capture the impact-driven growth opportunities in their industries over the longer-term.

Having an ‘A-ha’ moment on battery electric vehicles

Not all readers I imagine will have fond memories (or indeed any memories!) of the Norwegian pop group ‘A-ha’. During the late 1980s, the group was one of the most popular bands in the world. What is not so well known is that A-ha were dogged campaigners for battery electric vehicles (BEVs) and are now seen as having been influential in helping Norway into ‘pole-position’ in the race to convert to BEVs.

At WHEB, we are also big fans of BEVs. Approximately 8% of the strategy is invested in companies with exposure to BEVs and their value chains such as Aptiv, Infineon, and TE Connectivity. We’ve even launched a policy enabling employees to access a BEV leasing scheme giving them easier and cheaper access to BEVs.

Are BEVs better for the environment than ICEs?

But not everyone is a fan. The most common argument levelled against BEVs is that the negative environmental impact of manufacturing BEVs outweighs any positive benefits associated with operating the vehicle. This is often followed up with a ‘and if the electricity is provided by coal, it is even worse’ line of argument.

It is amazing how durable this argument has been. And like a lot of deceptions, it contains an element of truth. Building a BEV does indeed produce more CO2 emissions than building an internal combustion engine (ICE) vehicle. This is almost entirely due to the manufacturing of the battery. An average BEV will have more than twice as much copper and manganese as an ICE and will have a lot more lithium, nickel, manganese, cobalt, and graphite. In all more than five times as much metal (by weight) as in an equivalent ICE.

You need to consider the life-cycle

But the key point is that across the whole life-cycle of a road vehicle, manufacturing represents a small part of the overall footprint. Road vehicles consume a lot of energy in their use. Much more in fact than that which goes into their manufacturing. And this, of course, is where you see the real benefit of a BEV.

Transport and the Environment (T&E) was the group that uncovered ‘dieselgate’ at Volkswagen, and they conducted an extensive life-cycle analysis of BEVs versus equivalent ICEs using both diesel and petrol. Their analysis showed that across multiple geographies, in every case BEVs were significantly better in terms of life-cycle CO2e emissions than the ICE equivalents. In Poland, where coal dominates power generation, CO2e emissions were 29% lower for BEVs. In low carbon, Sweden’s emissions were 79% lower. Similar studies by Bloomberg New Energy Finance, the University of Michigan, and the International Energy Agency have all reached the same conclusion.

T&E study on life-cycle emissions from vehicles in different European countries

BEVs benefit from the fact that electric motors are typically very efficient. Approximately three-quarters of the energy that is put into a BEV motor is converted into power that drives the vehicle. For an ICE vehicle, the equivalent number is somewhere between 12-30%.

It’s getting better all the time

At the same time, grid electricity is being progressively decarbonised. As renewables are added to electricity grids and fossil fuels are phased out, BEV outperformance just gets better and better.  There are also likely to be improvements in the manufacturing phase as well. The metals in the battery are expensive and highly recyclable. Battery manufacturers are very keen to use as many recycled materials in their batteries as possible. NorthVolt expects to be sourcing 50% of its raw materials from recycled sources by 2030. CATL think that they will eventually get to 100%.⁸ This will improve relative performance even further.