Insights

Sustainability doesn't Suck: Part Two

My father and my stepmum live in an apartment on a semi busy road with little or no noise pollution from the traffic, except from the buses that run past their place. The road dips just outside their place meaning the bus drivers need to accelerate into the rise. Even my 82-year-old father said to me the other day, as our conversation was interrupted by the noise from the bus outside, “I can’t wait until the buses are all electric”.

I spent many years living and working in HK and one never forgets walking along the street breathing in exhaust fumes, but think of the noise pollution that traffic also generates. Both of these byproducts are eliminated by electric vehicles (EVs) and this is why I believe HK is the perfect place to go almost 100% EV.

Sustainable returns are driven by time and price. While sustainability is most often used regarding climate, it is not exclusively a climate related term.  Electric vehicles generate sustainable returns given the growth rates of EV sales over the past 10 years and the forecasts for the next decade. EV sales have risen from almost zero in 2010 to 2.5% of total sales as at the end of 2019. Most forecasts have this growing to 30-40% of total sales by 2030 and this is just passenger and light duty vehicles, it doesn’t include my father’s hoped for conversion of public transport.

Sustainable returns need a time frame and a price entry point. Tesla stock has been publicly available for over a decade (sustained a store of value) but it hardly generated sustainable returns, or in fact any returns until the middle of 2019. Since then, the stock has risen by ~ 14 times. Does this qualify as a sustainable investment?

Source Refinitiv

By almost every metric Tesla stock price is expensive; much of the next decade’s EV growth and increased battery usage is already in today’s price (as is the case with any equity). Should investors be tactical with their sustainable investments? Yes.

Looking at my recent attempt to define sustainable returns, we can now relate to EVs:

  1. Sustainable returns need to relate to a time period. EVs qualify, as the 10-year outlook and growth rates are likely to be positive.

  2. Macro policy: net Governments are likely to be more, not less supportive of EVs, albeit there will be inconsistency in how policies evolve.

  3. Sustainable returns can be by sectors as well as individual equities. This is also a positive.

  4. Sustainable returns are dependent on the entry price. This is where the rubber hits the road.

How do we decide on price entry points of sustainable investments? The same way one decides on the price entry point of any investment.

Tesla, for mine, looks ripe for a significant correction based solely on the price action, but this is the criteria I would use. Everyone must determine their own investment criteria. 

Source Refinitiv

At this point you might be wondering why an investment manager (Beckon) that invests in property and SMEs is writing about Tesla stock?

Beckon cannot  influence  Tesla and how it impacts society and the environment. Contrast this with how we can help SMEs to measure their impact and how they can use that data to improve their business decision making. Compare the price of Tesla with the average SME that trades on 3-6 times earnings.

The cost of a traditionally aspirated vehicle should involve its carbon footprint. I should, for example, be able to offset my ridesharing by ordering an EV or choosing to pay for the parent company to aggregate and offset their carbon emissions (note to Uber).

EV is a sustainable theme in both the listed and unlisted spaces with a wide range of asset valuations. Sustainable returns combine sustainable themes with price entry points.

(*Disclosure I own a Tesla Model 3 and it's a great car.)

David (Bushy) Nolan

Beckon Capital Pty Limited (ABN 49 628 013 678), authorised representative No. 001280538 of Fundhost Limited (ABN 69 092 517 087, AFSL No. 233045) (“Beckon”)