electrification global
CAPEX
(2020 – 2030)
risks.
The following risks may be materially relevant but may not always be adequately captured by the summary risk indicator and may cause additional loss: Concentration risk, Emerging market risk and Active management risk. Sustainability risks may lead to a significant deterioration in the financial profile, profitability or reputation of an underlying investment and may therefore have a significant impact on its market price or liquidity. The environmental, social, and governance (“ESG”) considerations discussed herein may affect an investment team’s decision to invest in certain companies or industries from time to time. Results may differ from portfolios that do not apply similar ESG considerations to their investment process.
Future Electrification
one of the greatest opportunities in the history of capitalism?
Electrification is becoming one of the biggest system changes in the history of capitalism – and potentially one of the most significant investment opportunities of our time. Free-falling costs, massive efficiency gains and widespread applications will drive shifts in profit pools across sectors focused on energy demand, supply and enabling solutions.
$24.6tn
19%p.a.
annual growth in
electric car sales
(2022 – 2030)
x45
increase in battery
storage capacity
(2022 – 2030)
a large opportunity set.
demand-side
electrification
green power
supply
electrification
enablers
rewiring our economies.
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plugging into opportunity.
As more tipping points within the shift to electrification are crossed, the energy system is moving at speed and scale away from a fossil-fuelled, centralised, unidirectional, dirty and wasteful model to an electrified, decentralised, bidirectional, clean and efficient one.
Source: PUTNAM 2023. For illustrative purposes only.
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capex doesn't lie.
USD 24.5 trillion of capital expenditure is on course to be deployed towards electrifying the energy system in this decade alone. We believe this is going to shift dozens of revenue pools across the energy value chain, transforming supply, demand and the market for solutions enabling this transition. For instance:
- Energy-related building renovations will become a USD 875 billion market growing at 7% per year
- EV sales will become a USD 1.7 tn market growing at 19% per year
- Wind and solar power generation will become an USD 875 bn market growing at 18% per year
- Small-scale batteries will accelerate by 34% per year to become a USD 130bn market
- Power electronics will become a USD 730 bn market
- Solar module manufacturing will become a USD 120 bn market, growing at 6% per year
- These new growth markets will displace fossil-fuel-driven incumbents:
- The internal combustion engine market will plummet at a rate of 8% per year
- Oilfield services and natural gas infrastructure will decline at a rate of 2-6% per year
Source: PUTNAM projections; Note: Capex includes full spending on new technologies (such as solar panels, wind turbines, etc.). For transitioning products, such as vehicles, it includes only the increase in capex related to electrification (for instance, the difference in cost between a regular vehicle and an electric vehicle), to ensure that the capex spend shown relates most directly to specific trends around electrification. There is no guarantee that a target objective will be reached (not an accurate indicator).
electrification investment themes.
Moving at scale, depth and speed, electrification is rewiring the energy system. We approach this opportunity by focusing on the following three themes.
1. Demand
As clean electricity displaces fossil fuels, sectors from buildings to mobility and industry will be transformed. From today until 2050, the share of electricity in each of these markets will fast become dominant:
Buildings: from 35% to 83%, as properties undertake green renovation
Mobility: from 1% to 70%, as transportation systems become electrified
Industry: from 22% to 55%, as carbon is removed from processes like steelmaking
This shift in demand will significantly impact profit pools, such as those in the heating market.
2. Supply
To meet rapidly increasing demand, the supply of renewable power, electricity transmission capacity and distribution, and energy storage must surge. By 2030:
Wind and solar power’s share of electricity generation will more than triple
Battery storage capacity will rise 41x
21 million kilometres of additional transmission and distribution networks will be installed
Such massive increases in electricity supply will reshape profit pools, such as those in the market for power electronics that control and convert electricity.
Source: PUTNAM 2023. For illustrative purposes only.
3. Enabling solutions
To enable these immense changes in supply and demand, specific raw materials, dedicated infrastructure and advanced technological components are essential.
This is already apparent in the electrification of mobility. In 2017, one in 80 autos sold was an EV. Now one in 7 cars bought is battery-powered. By 2030, it will be 1 in 1.6 – or 63% of the market – and this is driving huge value-chain disruptions in the passenger-car market.
- The value of essential metals (like aluminium, copper and lithium) used in an EV is 7x greater than those used in an ICE
- Semiconductors used in EVs are valued 4x more than those for ICE vehicles
- The capex for EV charging infrastructure will double this decade, unlocking a USD 200 bn market in charging services by 2030
- EV battery manufacturing is growing at 20% per year and will unlock a USD 100 bn market by 2030
- Passenger cars are becoming super-computers: the automotive-software market is growing at a rate of 56% per year and will unlock a USD 225 bn market by 2030
Semiconductors are already in strong demand across industries. The continued electrification of mobility will only intensify their attractiveness.
Source: PUTNAM 2023. For illustrative purposes only.
portfolio characteristics.
Our Future Electrification strategie is a high-conviction, global portfolio of 40-50 stocks focused on attractively valued companies driving the transition to an electrified economy. Key characteristics include:
- Mid- and large-cap bias
- Focus on the Industrials, Information Technology, Materials, Utilities and Consumer Discretionary sectors
- Active share of 94%
- Similar style characteristics, but with higher growth than the reference index (MSCI ACWI TR ND)
- The final portfolio features higher growth and quality at attractive valuations relative to our reference index
investment team and process.
Our integrated sustainability and investment research team of 48 people focuses on establishing robust, science-based analysis of future electrification, focusing on:
- Innovation tipping points and value-chain disruptions
- Shifting profit pools
- Assessing companies’ alignment to the transition and their potential to generate green alpha1
research.
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| Thomas HÖHNE SPARBORTH, PhD Head of Sustainability Research |
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| Systematic 10 Analysts |
Roadmaps 20 Analysts |
Fundamental 18 Analysts |
investment.
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| Paul UDALL Lead PM Electrification |
Peter BURKE-SMITH Junior PM Electrification |
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| Other Equities PMs 6 Investment Professionals |
Research committee: Green Alpha Ideation 1
(weekly, 7 members)
Industry roadmaps
Value chains disruption
Profit pools’ shift analysis and inflection points
Companies’ alignment and Green Alpha 1
Sustainable investment universes
Research Lists
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| Nicholette MacDonald-Brown Head of Sustainable Equities |
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| Michael URBAN, PhD Chief Sustainability Strategist |
Investment committee: Stock Selection
(bi-weekly, 7 members)
Macro dynamics
Thematic preferences
Sector/regional constraints
Style bias in the context of macro dynamics
Investment with margin of safety
Risk integration
Our research committee, consisting of seven members and includes our Equities CIO, meets once a week to review our electrification stock universe. Through an iterative process, these companies are further analysed jointly by sustainability research and investment specialists to consider thematic and financial characteristics. The result is a continually validated 280-stock universe with a high level of thematic purity and potential to generate what we define as green alpha: a source of equity outperformance that is linked to the environmental transition but not yet priced by the market.
The investment committee, whose seven members include the portfolio management team and chief sustainability strategist, meets twice weekly to assess:
• Macro dynamics
• Sector and regional constraints
• Style bias in the context of macro dynamics
• Investment ideas with margin of safety
• Risk management
Source
1 We refer to “Green Alpha” where companies are likely to perform better financially in an environmentally-aligned scenario, compared to consensus. To assess green alpha, we assess market tipping points linked to emerging regulation, cost-down curves, and the pricing in of environmental externalities. Based on this analysis, we aim to describe, quantitatively or qualitatively, total addressable market (TAM) potential. Where companies are exposed to TAMs that are likely materially in excess of market consensus, we consider such companies to be exposed to green alpha. Although we believe there are investable opportunities related to these transitions, there can therefore be no guarantee of excess performance.
contact us.
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Past performance is not a guarantee of future results. If the funds are denominated in a currency other than that in which the majority of the investor's assets are held, the investor should be aware that changes in rates of exchange may affect the value of the funds' underlying assets. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
