Centers of Expertise
Transition Centers of Expertise: Mobility - Land
The movement of people and goods over land represents about 12% of global greenhouse gas emissions1. Enabled by recent advances in battery energy storage, we believe the electrification of road transport will be central in the transition to a low-carbon economy.
Key takeaways
- The passenger EV industry has entered its growth stage, with rapid increases in adoption and usage, as well as improving technology and falling costs.
- Different regions are at different stages in the EV-adoption curve. China and Europe have taken the lead, followed by the U.S.
- Investment opportunities extend beyond the vehicles themselves to charging infrastructure, battery technology and other emerging fields.
- Given the cost of capital, and the high capital expenditure requirements in many areas of EV manufacturing and infrastructure, we expect further consolidation.
- Risks include lower-than-expected adoption rates, thinner profit margins on energy resale, technology obsolescence, and grid-capacity or supply-chain bottlenecks.
- Opportunities in this space are diverse across public and private markets, and in maturity from venture-stage companies to large-scale infrastructure plays.
About BlackRock’s Transition Centers of Expertise
The transition to a low-carbon economy is among a handful of major structural shifts that we see rewiring economies, sectors and businesses.
BlackRock’s new Transition Centers of Expertise (CoEs), of which our Battery CoE is one, bring together the knowledge of our more than 600 sustainable and transition specialists across the firm, as well as external experts and industry associations. These virtual communities, organized by sector technology, encompass expert views throughout the capital stack and across industry value chains, contribute to the assumptions used in the BlackRock Investment Institute Transition Scenario (BIITS), and help source new opportunities for our clients.
Introduction
The BlackRock Investment Institute Transition Scenario projects that demand for electric vehicles will increase roughly seven times by 2030 from today’s levels, led by growth in the U.S. The reasons include lower costs, the growing availability of public charging infrastructure, and a wave of policies banning the sale or manufacture of internal combustion engine vehicles in the 2030s. As a result, we expect nearly every new car in the world to be electric by 2050.
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The degree to which consumers choose to charge their EVs at home or use public chargers will depend, in part, on the availability of power delivery and resultant charging speeds, which can vary from minutes to hours2.
Those speeds will likely increase as technology improves and high-power charging (150kW and higher) becomes more widely available.
These factors look different for medium and heavy-duty road vehicles including buses and trucks, however. Such vehicles drive longer distances, carry heavier loads and are on the road for a substantially larger portion of the day, which means they require bigger batteries, higher capacity charging, and often charging depots with schedules that optimize logistic.
That could mean fleet operators with effective time- and demand-based charging strategies or dedicated heavy-duty charging networks will best be able to minimize their fleet downtimes as public infrastructure networks continue to be built out.
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The added load of EV charging on regional electric grids is projected to elevate global power consumption by approximately 15% by 20504. While this could prove to be a headwind, the anticipated increase in demand spans decades, providing system operators with ample time to refurbish and expand their existing networks.
One outstanding challenge remains, however, in the form of grid connection delays. It's possible that system operators may struggle to keep pace with escalating connection requests.
On the more positive side are vehicle-to-grid technologies, by which electric vehicle owners can offer energy storage to grid operators using their vehicle batteries. This would contribute to grid stability while allowing users to benefit from the evolving energy landscape.
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Changes in technology, policy and the shifting preferences of consumers and investors can move technologies or sectors from being on a gradual, linear path of decarbonization to an exponential acceleration after they reach a tipping point.
Markets will sometimes anticipate future earnings growth and price it in before the tipping point is reached, however, changing the potential investment opportunity. In some cases, valuations can get ahead of themselves.
For example, we have seen the valuations of many EV companies surged before pulling back last year, even as their overall market share kept growing5. For this reason, we believe finding transition-related opportunities that are not priced in yet requires granular analysis.
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We see attractive investment opportunities across the clean transport value chain and in adjacent businesses.
Competitive advantages are emerging for companies with existing assets or partners in areas such as retail fueling locations, where customer convenience reigns.
For public chargers, adjacent business models that deliver retail and services to customers while they wait may see strong growth, exemplified by BP’s recent acquisition6 of Travel Centers of America to expand its convenience retail and EV charging business.
In the transition to a low-carbon economy, electrification is an immediate and vital phase, making it front-and-center in terms of investible opportunities.
Government incentives, changing consumer preferences and technological developments, especially in batteries, are rapidly altering the landscape for EVs and related infrastructure, and making it an opportunity worth exploring.
Mega forces: Low-carbon transition
The transition to a low-carbon economy is set to involve a massive reallocation of capital as energy systems are rewired. We see the transition’s speed and shape driven by an interplay of policy, technology and consumer and investor preferences.
Investor Q&A
Our Mobility CoE includes Patrick Bydume, an investor in energy-related infrastructure, SuetChee Chiong, who invests in early-stage private companies, Giovanni D’Andria, who specializes in energy infrastructure across Europe, Hannah Johnson, an active manager in public markets and Paddy O’Kane, Chair of the BlackRock Mobility Center of Expertise.
Where do you see the most compelling opportunities in electrifying ground transport?
Giovanni D’Andria: Even as we focus on individual opportunities, it’s important to remember just how wide the range of opportunities really is. From an infrastructure standpoint, there’s a clear gap – and we believe there’s a clear investment opportunity – between the vehicles on the road and the public charging stations.
This gap takes a few forms, and the priority is making sure that there’s charging infrastructure available. And there are other related gaps in spaces like high-powered charging infrastructure. There’s also a new focus on charging-station networks for long-distance travel, whereas at the beginning people were just focusing on EVs for local use.
Now we’re seeing opportunities to invest in chargers that are more future-proofed, so that the investment can last longer. And as the sector becomes more technologically sophisticated it increases the barriers to entry for many potential competitors. We think it's really going to be a few players that will dominate the sector.
Hannah Johnson: Yes, there’s a winner-takes-all situation emerging for the most competitive offerings. There are more situations where consolidation may occur among the listed infrastructure players, especially as valuations fall. Consolidation, by bringing greater standardization, should help to derisk the technology aspect.
In components like the electric motor, the battery, the raw materials and software, there could be volume plays. In technology, for instance, a software system can see its profit margins grow rapidly as you increase its adoption.
SuetChee Chiong: As EV technology matures, the deal opportunities have moved toward private equity and infrastructure rather than venture capital, especially in the equipment manufacturing and charging space.
But that maturity isn’t uniform. The passenger EV space is reasonably mature, while the commercial vehicle sector is only just starting to electrify. Currently, the users are primarily logistics players who are actively lowering their carbon footprint and attracted to the lower total-cost-of-ownership economics of electric fleets. This is because commercial buyers are more driven by economics and a clear business case and not driven by emotions.
We’re starting to see innovative commercial EV business-services models, which will further accelerate the electrification of commercial vehicles. The majority of traditional logistics fleet owners have a competency gap in this area, which opens up space for these EV-services businesses.
New normal
Recent and projected EV share of new passenger vehicle sales by market
Source: BloombergNEF, June 2023. Note: Europe includes the EU, the UK and European Free Trade Association (EFTA) countries. EV includes battery electric vehicles and plug-in hybrid electric vehicles. Forward looking estimates may not come to pass.
Read the full report
Market insights contributors
Dickon Pinner
Head of Transition Capital
Mark Everitt
Head of Private Markets Investment Research and Strategy
Christopher Kaminker
Head of Sustainable Investment Research and Analytics, BlackRock Investment Institute
Benjamin Attia
Research Lead for Energy, Climate and Sustainability, BlackRock Investment Institute
Centers of Expertise: Mobility - land
Patrick Bydume
Director, Climate Infrastructure Group
SuetChee Chiong
Director, Decarbonization Partners
Hannah Johnson
Portfolio Manager, Fundamental Equities, Active Equity Group
Giovanni D’Andria
Director, Climate Infrastructure Group
Paddy O’Kane
Director, Climate Infrastructure Group
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