Investment Idea

Time to accelerate in the match for environmentally friendly vehicles!

Mikael Syding
18/08/2020 | 4 min read
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Are you looking for investments with a technology and environmental focus, but think that, for example, Tesla feels a little difficult to digest at today's levels? Which energy storage technologies are really sustainable and which companies have the best opportunities?

Are you looking for investments with a technology and environmental focus, but think that, for example, Tesla feels a little difficult to digest at today's levels? Which energy storage technologies are really sustainable and which companies have the best opportunities?

It is not easy to find the right one. The details are important when it comes to efficient systems around environmentally friendly vehicles, not least in terms of distribution, cost and availability, durability and user-friendliness (refueling).

With Tesla at the forefront, battery-powered cars have received enormous attention, but it has been difficult for them to take significant market shares from internal combustion engines despite a decade of multi-billion subsidies. Unfortunately, batteries are heavy, charge slowly, lose efficiency quickly over time and the actual production and recycling cycle is not very kind to the environment. They have hardly been cheap either, although the development is promising in some places. At the same time, there have been no really cost-effective and environmentally friendly alternatives to batteries.

The situation for battery cars has been partly saved by the fact that most passenger cars are usually driven relatively short distances in urban environments, where there are plenty of charging options - not least at night. Thanks to a holistic approach to hydrogen cells, however, the truck manufacturer Nikola has finally been able to emerge as a serious challenger to battery systems intended for more long-distance and heavy commercial transports.

On 12 May 2020, I wrote about some of the differences between battery-powered vehicles on the one hand, and those where the energy source consists of fuel cells with hydrogen on the other. I then pointed out some of the benefits of hydrogen, e.g. fast refueling that counts in minutes rather than hours, and that the vehicles do not have to lug around heavy batteries that wear out both the environment and the wallet.

The truck manufacturer Nikola, like the electric car manufacturer Tesla, has taken its name from the legendary researcher and inventor Nikola Tesla, who together with Thomas Edison was a pioneer in the field of electricity. Perhaps, however, Edison would have been a more appropriate name, given that the fierce strife between the inventors is reminiscent of the battle between Tesla's Elon Musk and Nikolas Trevor Milton. Nikolas’ development is enlightening regarding the promising possibilities with hydrogen technology.

One of the genius features from Milton and Nikola's side is to focus on building up hydrogen distribution along a single key section for trucks. Most trucks go back and forth the same distance all their economic lives - much like a train. With this strategy, Nikola avoids the enormous costs that it would cost to create a comprehensive network of hydrogen power plants (compare with Tesla's Superchargers).

A problem with hydrogen has been the high price to the consumer, due to costs for stations and electricity for the actual production of the gas. Nikola solves this by standardizing the previously tailor-made stations, as well as producing the gas with the electricity companies' network balancing surplus. Standardization entails, among other things, economies of scale and enables more efficient and cheaper component production.

Nikola's locally located standard stations thus produce gas on site and store it in their tanks when the electricity is cheap or free due to the power companies producing more than what is in demand at the time. This applies in particular to renewable electricity. Sometimes Nikola can also get paid for their service with network balancing. This means that there is always cheap gas ready that can be refueled to optional visiting vehicles in a few minutes. Batteries, on the other hand, draw an enormous amount of electricity directly from the mains when the batteries are to be charged. It puts extreme pressure on the internet, especially if it is daytime and you want to fill the car quickly. Fast charging also quickly reduces battery life.

Not least, it should be pointed out that the life cycle of both hydrogen vehicles, fuel cells, road wear and the actual production of hydrogen, etc., has a minimal impact on the environment compared with current battery technology.

For those of you who are interested in a flexible way to gain exposure to a well-balanced portfolio of hydrogen applications, take a look at tracker certificates with the Solactive Hydrogen Top Selection Index NTR as the underlying index. The index consists of fifteen companies with hydrogen and fuel cell-related operations. It contains small, specially focused companies, gas production giants, as well as medium-sized engine and vehicle manufacturers. Nikola is missing so far, but it can be good considering that Nikola is so new that it still has no income.

The index provides exposure to a portfolio of both large and small companies. The companies with the greatest weight in the index are thus not the companies with the highest market value. On the contrary, the smallest companies, NEL, Chart, Chemours and Plug Power, are the index's four heavyweights with a total weight of 42%. If you are interested in environmentally friendly energy technology, hydrogen-related companies are at least an exciting area for you to look for opportunities in. It is an electric battle that is underway 140 years after the fight between Nikola Tesla and Thomas Edison. Who are you betting on?

Note: Investors in a tracker certificate should note that they bear, among other things, the credit risk of the issuer (the risk that the issuer of the certificate is not able to fulfill its obligations under the product) and the market risk of the underlying index. The investment is not subject to any capital protection.

@Mikael Syding

This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

The products are not capital protected, in the worst case a total loss of the invested capital is possible. In the event of insolvency of the issuer and the guarantor, the investor bears the risk of a total loss of his investment. In any case, investors should note that past performance and / or analysts' opinions are no adequate indicator of future performance. The performance of the underlyings depends on a variety of economic, entrepreneurial and political factors that should be taken into account in the formation of a market expectation.