Fierce Competition: Manufacturers of Electric Cars from China About to Conquer a Major Part of the Market

Revenues among renewable energy companies are rising, but returns are still problematic in some cases. This should change, however, as growth will continue in the coming decades. Many stocks that had fallen sharply last year have since reported quite good financial results. Overall, the renewable energy index has fallen by almost 50 percent. If you compare this to the dotcom bubble at the turn of the millennium, it took about two years and six months from peak to bottom. Based on this assumption, we have one more month until the bottom.

Undeniably, the path to net-zero emissions will require significant investment. Three issues will be at the core of this: Energy, electrification and resource efficiency. In terms of electric cars, we see Tesla and BYD in particular. China could come in full force here. The quality of cars produced in China is good and the prices are lower, so China could take over a large part of the car market within a few years. Obviously, it's relatively easy to produce a few good-looking electric cars and outsource many difficult components like the battery pack and inverter. However, to gain a competitive advantage, it seems better to develop critical hardware and/or software in-house, as Tesla and BYD are doing. The challenge is to scale production and offer high-quality products at a price that is competitive with alternative solutions and provides a reasonable return on investment.

Currently, 10 million electric cars are being sold each year, out of a total of 80 million new registrations, which corresponds to a share of 12.5 percent. So before electric cars attain a dominant market share - as in Norway, for example, with 80 percent - there is still considerable growth potential ahead.

Electrification requires investment in the power grid

As renewable energy expands and more people install solar panels on their roofs, the power grid will need to be upgraded to handle larger transmissions and provide more flexibility.

Currently, there is not enough capacity on peak days. More investment is needed. Smart technology that heats hot water and charges electric cars at the most convenient times of day could help. Ultimately, we expect that battery technology will eventually be installed on a large scale in both public buildings and private homes.

Companies active in this space include Schneider Electric and Hubbell, which are also in the DNB Renewable Energy portfolio. They produce parts for the power grid, and many consumers have Schneider products in their fuse boxes.

In addition, the fund invests in mining companies that supply rare earths and lithium. These selected mining companies operate almost exclusively outside China. However, it is unlikely that the mining companies will be able to meet the demand created by the electrification trend.

Reduced consumption of resources and energy

A second important and large area of investment is energy efficiency. Heat pumps have long been used in Scandinavia, while they are still an important area of growth in other parts of the world. Traditional insulation of pipes and buildings to prevent heat loss is an important contribution to reducing energy demand. In general, there are many ways to meet the new requirements for both existing buildings and new developments.