Tesla to Benefit from IPCC Climate Change Recommendations

IPCC report recommends faster electric vehicle adoption; Morningstar analysts’ above-consensus electric vehicle adoption thesis is intact

Morningstar Equity Analysts 9 October, 2018 | 12:14PM
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Tesla model S electric vehicle US equities climate change

On October 8, the Intergovernmental Panel on Climate Change released a report that calls for faster electric vehicle and hybrid adoption as part of the actions needed to limit the effects of climate change. The report calls for emissions to be reduced 45% versus 2010 levels by 2030.

The report will be a key topic at the Katowice Climate Change Conference in December, where governments from around the world will review the Paris agreement. We think the report's conclusions could lead to governments setting stricter regulations and investing in electric vehicle charging infrastructure that would result in increased electric vehicle adoption.

We continue to see regulation as the driving force behind medium-term electric vehicle adoption. Regions with electric vehicle-specific regulations and incentives will provide a stronger push for electric vehicle adoption. China will continue to make the strongest regulatory push to increase adoption.

Tightening fuel standards in the European Union will push automakers toward electrification over the next decade, while fragmented U.S. policies that vary between the state and federal levels will have a mixed impact.

Over the long term, electric vehicle adoption will take off where regions combine abundant charging infrastructure with strong regulation. In China and the EU, we forecast electric vehicle adoption to reach 25% and 20%, respectively, of annual new light-vehicle sales by 2028.

In the United States, where charging infrastructure will be less developed and regulations less stringent, we think electric vehicle adoption will lag, reaching only 12.5% by 2028. Using a regional build-up, we forecast that electric vehicles will make up 15% of global auto sales in 2028, above the consensus forecast for 11%.

We forecast hybrids to make up 21% of global auto sales in 2028, which would make electric vehicles and hybrids 36% of total vehicles. Our top picks to invest in growing electric vehicle adoption include Albemarle, BMW, BorgWarner, Edison International, General Motors, and SQM.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Morningstar Equity Analysts  Morningstar stock and fund analysts cover 2,000 mutual funds, 2,100 equities, and 300 exchange-traded funds.