On Wednesday Pinnacle Investment Management Group Ltd (ASX: PNI) held the third day of its week-long Pinnacle 2020 Virtual Summit.
On Tuesday, fund managers were sharing their views on the small cap sector (you can read about that here), whereas on Wednesday they turned their attention to global equities.
Yesterday’s event saw presentations from Antipodes Partners CIO, Jacob Mitchell and Hyperion Asset Management Chair, Tim Samway.
Here are key takeaways from the event:
The decarbonisation super cycle.
At the event, Antipodes revealed that it has lifted its exposure to the beneficiaries of European decarbonisation. This is something which Jacob Mitchell believes is a major emerging super cycle.
He explained: “The European Union really has had this investment cycle sitting on the shelf for some time, it’s called the New Green Deal and it’s anchored by the emission trading system that’s been in place for some time. We think it’s the emergence of a virtuous cycle… What the emissions trading scheme encourages is the decarbonisation of the power sector and as the carbon price goes higher and that decarbonisation takes place you are typically generating revenue for Governments.”
This essentially means the government can then take these revenues and subsidise parts of the economy which are not subject to the emissions trading system. This includes transport and the adoption of electric vehicles or the transformation to electric power for heating.
The chief investment officer continued: “This all feeds back into demand for electric power, so we see a major emerging super cycle… If Europe is to deliver on its 2030 targets the demand for electric power will grow some 37%, that is massive. You need to be in companies which are actually doing the upgrade on the grid or providing the materials for the upgrade.”
Mr Mitchell named Siemens, Norsk Hydro, and Électricité de France as companies in the Antipodes portfolio that are positioned to benefit.
Tesla is more than just a car company.
Hyperion Asset Management’s Chair, Tim Samway, discussed its number one holding, Tesla Inc (NASDAQ: TSLA).
Mr Samway believes that many investors don’t understand the full potential of the electric vehicles business.
He commented: “They’re currently producing a run rate of 500,000 vehicles a year, rising to about 3 million a year in no time at all, so the vehicle sales growth story is actually a good story in itself and it’s actually even better when you look at what’s happening to the rest of the car market.”
The fund manager notes that as of June of this year, there had been 28 consecutive months of deterioration in global new car sales. Yet Tesla has substantially increased deliveries and sales during this time.
But that’s only a part of the Tesla story.
Mr Samway explained: “But we’ve never been interested in just another car company. When they get to a production of 3 million cars a year this results in the addition of tens of thousands of megawatts of battery storage per year sitting in cars in consumer garages. Eraring Power Station on Lake Macquarie is rated at 2900 megawatts and is the largest in Australia… We’re talking about Tesla adding multiple Eraring stations per year in storage to garages.”
“So, with Tesla Autobidder software the storage will be available eventually to the grid as a virtual power plant and can offer service to the energy market such as frequency regulation, grid support, reserve capacity and time shifting,” he added.
Why is this important? This is important as it has the potential to generate incredible revenues for Tesla in the future.
“If you don’t know what frequency regulation is for Tesla, then it’s just a speculative car bet… I suspect most people just don’t understand the revenue Tesla stands to earn from all these services.”
“The substantial opportunity for Tesla is to actually dominate that virtual power plant and energy storage market through a first mover advantage and that’s just missing from most sell-side analysis at the moment,” concluded Hyperion Asset Management’s Chair.
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