China’s long and winding road to recovery
This article first appeared on professionalparaplanner.co.uk on 18th August 2023 As we sit on the...
I love a good shopping day, but 5 hours driving from car showroom to showroom to hear about what seems to be the same features on very similar cars all afternoon? No thank you. My husband on the other hand was in heaven. After six years of me saying we don’t need a new car, I’ve finally cracked – mainly because each year’s MOT gets more and more nerve-racking! So off we went, with a list of seven cars my husband had spent months researching online. I only liked two… Like I said, it was a long day. But if this job has taught me anything, it’s there’s always a story somewhere. And, if wait times are an indication, maybe there’s an investment opportunity to be had here too.
“I couldn’t repair your brakes, so I made your horn louder.” — Disney ‘Cars’
Simply put no. I had to suppress my eye roll when the salesman at Mercedes tried to tell me what a great investment the car was. The fact is new cars depreciate by an average of 10% the moment a driver leaves the dealership. One exception could be through purchasing old classics, but they can be expensive to start with and certainly not within my budget.
Zed Osmani, manager of FTF Martin Currie European Unconstrained fund, has had a top ten holding in Ferrari for a number of years. But it perhaps goes without saying that Ferrari’s are also out of our price range.
So, as we sat in the Toyota RAV4, all I could think about was our recent podcast with Andy Brown from Baillie Gifford Japanese telling me why they’re selling out of car names like Toyota. Andy explained, “In the eighties and nineties the Japanese car companies took the American market by storm. But they are way behind when it comes to electric vehicles. Toyota is very much the national champion in Japan and it’s a business we’ve owned for quite some time. It’s been very successful, but it’s a stale business now. It has invested very heavily in hybrid technology, but that has been leap-frogged now by electric cars. A recent review of the company brought to bear for us that Toyota has to invest a huge amount to catch up on electric vehicles and to catch up in autonomous vehicles.”
The company most associated with electric vehicles is, of course, Tesla. It’s been a holding in Sanlam Global Artificial Intelligence fund for some years and, despite the share price being down some 25% from its peak, manager Chris Ford still likes it as an investment.
“We think about it in context of the broader market,” he said. “If you believe most vehicles here will be electric by 2030, you have to ask yourself, who will sell them? If you don’t think it’s going to be Tesla, who do you think it is going to be? And if you think it’s going to be Ford or BMW or someone else, where is their lithium coming from, their battery testing? Where are their manufacturing capabilities to build them? Very little thought has been put into the supply chain at the moment. In the first quarter, Tesla beat production estimates. How did it manage its supply chains so well, even though it needs more semiconductors? Because it has been doing it for longer and it’s the only thing it does.”
Unsure about the carmakers themselves? Maybe that supply chain is worth a look. There’s a number of components that make up the modern-day car – especially electric vehicles! The major player in the semiconductor space is Taiwan Semiconductor or TSMC, a holding in Matthews Pacific Tiger, Fidelity Asia Pacific Opportunities and FSSA Greater China Growth funds*.
More niche examples can be found in materials like copper. Chris Garsten, manager of Waverton European Capital Growth, told us about a Swedish company that mines copper. One uses of the copper is in the production of electric car components.
Another factor of modern cars is the sheer level of technology they encompass. Tom Hutchinson investment analyst on IFSL Marlborough Global Innovation fund previously told us about radio frequency technology and their holding Qualcomm. According to Tom, “one example of this is their focus on cars, whereby technology can facilitate automatic safety systems, an interactive cockpit – think about the latest cars which have iPad-like control panels – and autonomous driving, and recent deals include those signed with BMW and Ferrari.”
As we drive off the forecourt, it’s certainly something to think about.
*Source: fund factsheet, 30 June 2022