Energy transition driving transport changes

Even before the global pandemic forced us into lockdown, transport news offered very little hope.

There were rail delays and regular tales of gridlocked roads, while unfulfilled political promises did little to reduce transport’s 15 per cent contribution to global carbon emissions. Pretty depressing stuff. But this could change dramatically. 

At the start of this year, we saw one of the most significant developments in our lifetime - the beginning of the end of our reliance upon carbon. The cost of producing fossil fuels exceeded what buyers were willing to pay. 

Some pointed to the pandemic as being the root cause. The real reason was the remorseless fall in the prices of renewable energy had finally tipped the balance. In the first half of this year, 56 per cent of Germany’s electricity generation came from renewable sources, while the UK had a record 67-day streak without needing coal-fired power. With capital being invested into renewables, and innovation taking place, it adds up to an irreversible trend. 

At Scottish Mortgage, we try to identify these big drivers of change in the world and then find the exceptional companies that can deliver on their promises, and back them over long time periods. 

When thinking about companies, one of the questions we ask is: do you contribute to society? Some of the companies doing so are in the transport industry, where profound changes are taking place due to advancements in renewable energy and software. Earlier this summer, Herbert Diess, the VW CEO wrote “in five to ten years the world’s most valuable company will be a mobility company - that could be called Tesla, Apple or Volkswagen.” He was right to point to Tesla, which, in the words of its founder Elon Musk, is trying to “change the energy equation”. Over a short period, the company has entered a huge and capital-intensive industry with a new technology, sells every car it produces, whilst adapting to manufacturing on an ever-increasing scale. This demonstrates an impressive learning curve that suggests much more is to come as the company expands its global footprint. 

If we look around us, innovation in transport is already having an impact by removing friction from the global economy. Convoy, the ‘Uber for trucks’ is connecting shippers and truckers across the US via a smart phone app, as well as improving delivery times, reducing carbon emissions, and lowering costs by slashing empty truck miles travelled. In Africa, Zipline is overcoming the challenges of poor infrastructure by launching drones that put blood and life-saving vaccines in the hands of those in need. And in China, Meituan Dianping, the home delivery giant, is already piloting driverless home deliveries. 

Soon, we too could be transported by self-driving vehicles, allowing us to use our time more productively. Tesla’s autonomous driving functionality continues to gather sensor data from the billions of miles being driven by its growing fleet, while Aurora Innovation is developing technology that will provide other auto manufacturers with this functionality. But why must we limit ourselves to the roads? 

For many, the fanciful idea of flying cars recalls Marty McFly and the Delorean vehicle in the film, Back to the Future, but design innovation and improvements in battery technology are now bringing them from the silver screen into our skies. Lilium and Joby Aviation are developing flying taxis that will use the existing infrastructure in our modern cities for those wishing to travel within or between them. Reaching slightly higher, surely one of the most inspiring moments of 2020 was seeing Space X’s Falcon 9 rocket calmly return from orbit, ready for re-use. This matters, in the near term it changes the economics of satellite installation. Beyond that, the possibilities are infinite. 

As we emerge from the lockdown, headlines will be filled with the economic consequences of the pandemic. Perspective is important. We turn to academia - in his work, Foragers, Farmers and Fossil Fuels, Ian Morris puts forward the case that the way our societies are organised is dictated by the way we capture energy. This inflection point is hugely important and influencing our research agenda. We are excited to be meeting with a diverse range of companies - many of which are private and led by ambitious founders – that are equipped to navigate this change and become the structural winners of the next twenty years. We sit now at a moment of extraordinary hope for the positivity we desperately need. This energy transition will create huge opportunities, whilst also creating benefits to society that reach well beyond changes in transportation. 

By James Anderson, Co-Fund Manager of Scottish Mortgage Investment Trust

The views expressed in this article are those of Scottish Mortgage and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

Illustration by Andrew Park

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Autumn Issue Thirty Two