Concern over how the automotive sector will evolve toward
electric cars has prompted fund managers to reduce exposure to
traditional car makers in the U.S. and Europe.
In interviews with Institutional Investor, U.K. managers
said theyre avoiding western car makers in favor of
companies that produce batteries and components for electric
cars to manage what they call disruption risk.
James Balfour, U.K. equities fund manager at Aviva Investors,
said the firm has very limited, if no exposure to
automotive companies in Europe while noting there are concerns
about the outlook for U.S. carmakers despite low
Traditional auto companies face increased competition from
electric car makers such as Palo, Alto, Calif.-based Tesla and
Chinas BYD. The U.K. government this week announced plans
to outlaw the sale of petrol and diesel-fueled motor vehicles
after 2040, following similar policies by the French government
two weeks ago and Norway earlier this year.
The concern is that we know there is a shift to
electric, Balfour said in an email, but nobody
knows what the true make-up of the car park will be in the next
decade or two.
Balfour added that the picture is further complicated
because the demand for vehicles electric, combustion or
hybrid - is relatively unknown. Ben Preston, an analyst at
Orbis Investments, said his firm doesnt hold any
traditional car makers outside Japan, where he believes some
manufacturers have been overly sold despite significant
investment in research and development.
There is a transition under way, Preston said.
One of the problems with investing in car manufacturers
is that they havent generated great returns, it is a
fragmented industry and has been easy for newcomers to come
There have been conflicting views within the auto industry
in recent weeks as global car makers struggle to predict how a
transition from combustion to electric engines will play out.
Earlier this month, Volvo announced that starting in 2019 it
would only make electric or hybrid vehicles, while Aston
Martins chief executive Andy Palmer told the Financial Times that the U.K.
governments decision to outlaw combustion vehicles was
Janus Henderson Investors has been a vocal supporter of electric car maker
Tesla, believing the next 10 to 15 years will be transformative
for the car industry. Investors are increasingly aware of
a difficult transition for the incumbent automotive
manufacturers, according to Hamish Chamberlayne, the
firms head of socially responsible investment.
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The cost of batteries is declining now and so the
barriers to entry in the electric car market is shifting
completely, he said. It does pull the rug out from
underneath the feed of these traditional car manufacturers and
Im not sure the market has completely got on top of
Chamberlayne said he recognizes that investors are taking a
cautious view of traditional car manufacturers, but that the
transition to electric vehicles may only be part of the story.
Other factors, such as concerns about auto lending, may also be
weighing on investors minds, he said.