Connected urban environments will offer opportunities, say analysts, with Asia leading the way
In 2007, the world reached a landmark: for the first time in history, half of all humanity lived in cities. By 2050, the figure will be 68 per cent, says the UN.
Helping urbanites move around — and coordinating information and energy supply needed to keep cities connected — is, therefore, a vital consideration for policymakers and investors.
“We’re seeing a very fundamental shift into energy transmission and transportation — in how customers source cars, build supply chains, work with transport networks,” notes Stefan Barrows, Emea infrastructure director at Japanese bank MUFG. “For us, that is very exciting and creates new financing opportunities.”
Investments in electric vehicles and connected cities, however, have faced such criticisms as being overhyped, exploiting “techno-optimism” and delivering disappointing returns.
Consumer demand has weakened, causing some US carmakers to slow their transition to electric vehicle production. German manufacturers have struggled with rising EV and combustion engine vehicle production costs.
The iShares Self-Driving EV and Tech ETF — a fund that gives investors “exposure to global stocks along the full value chain of self-driving and EV industries” — has fallen in price by a quarter over 12 months and by 15 per cent since the beginning of January 2024. Its shareholdings include such car companies as Volkswagen, Porsche and Tesla and key suppliers.
Industry insiders remain sanguine. “US EV adoption likely entered an air pocket after having penetrated initial adopters and specific regions,” argue Citi investment analysts: “The situation won’t change overnight, but there’s cause for optimism over the next 12-18 months. Structurally, the US is set up for rapid EV adoption thanks to a high vehicle density starting point (circa 2 cars per household).”
Institutional investors see alternative ways to gain exposure to the so-called “mobility revolution”, as they believe transition still has far to go. That can make other listed companies more attractive.
“We are moving towards smart cities, and investing towards a better world with electric vehicles,” says Simone Ragazzi of Milan-based Algebris Green Fund. “But we need to invest as there is a shortage of grids, cables, charging stations: this is the main challenge for our cities, and for electric vehicles.”
For Ragazzi, a “smart city” is defined by “the use of information technology to improve everything regarding public administration”, not least “an efficient transportation system”. That has “everything to do with electric vehicles”, he adds. “Having a smart city means having a high availability of EVs — which could be trams, buses rather than cars.”
Smart cities, say experts, will be able to collect large amounts of data on people’s actions and use this to optimise city infrastructure and services. Electric vehicles collect more data about their drivers and surroundings than combustion engine cars.
London-based think-tank Asia House cites Japan as an example of how technology can be applied to urban environments: “Japan’s policymakers are committed to developing AI capacity,” its analysts write in their 2024 report. “The latest trends are veering towards the production of robots, self-driving cars, drones, smart cities and the development of AI for the service industries.”
Asia, as a whole, is leading the way. For example, Hangzhou, in China — where tech giant Alibaba is headquartered — has pioneered a “city brain” that uses technology to collect vast amounts of data. This data is analysed to improve the performance of the computer systems that run city services. For example, the city brain began by analysing traffic congestion using data from transport systems and road junction cameras. It then made changes to traffic light settings that increased average vehicle speeds.
Saudi Arabia, meanwhile, is engaged in several megaprojects. One, called The Line, plans a car-free, carbon-free city arising from the desert at costs of $100bn-$200bn. Saudi Arabia's mega-project: a 170km line city through the desert
But the smart city idea has faced a backlash. Hangzhou’s surveillance technology has its critics among those who champion individual freedoms and privacy and are concerned that data is being improperly used. In the West, some UK government ministers and conspiracy theorists have hit out at the idea of “15-minute cities”, in which amenities can be reached without use of a car, though with the sceptics claiming that the aim is to restrict the movement of citizens.
“What is sinister, and what we shouldn’t tolerate, is the idea that local councils can decide how often you go to the shops, and that they can ration who uses the roads and when, and that they police it all with CCTV,” said the UK’s transport minister Mark Harper, last October.
In some political circles, investments in EVs and smart cities are at risk of being grouped with the now-controversial funds that uphold environmental, social and governance (ESG) standards.
“We don’t like terms like ‘ESG’ and ‘green’ as, clearly, in finance and equities, we have seen that these topics have been a wild west,” says Silvia Merler, ESG and policy research head at Algebris.
Other, non specialist, investors contend that the best way to gain exposure to the secular shift towards EVs and connected cities is to continue investing in leading technology and infrastructure groups, which have the capital and the determination to continue investing.
“When we think about the energy transition and moving to a net zero economy, people often think of innovative start-ups and groundbreaking innovation,” says Ragazzi. “But at the same time when it comes to [paying for an] expensive transition, you need big companies who can shoulder this kind of investment”.
Kamal Bhatia, new chief executive officer of Principal Asset Management, says it is taking a “US-centric perspective and then a China-centric perspective”, looking at the fast-growing EV automakers in China and the technology companies making the breakthroughs that make progress possible.
These enabling companies are worth watching, he suggests: “The technology transition is going to happen, the regulatory transition is going to happen,” Bhatia says. “A lot gets said about the battery companies and the technology companies but, really, we need to understand the second and third-order effect companies that are going to participate in this transition.”
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Autor(en)/Author(s): Arjun Neil Alim
Quelle/Source: Financial Times, 30.01.2024
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