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Car of The Future Theme is Firmly Underpinned By Regulatory Initiatives

Clay Carter

Clay's 30+ years of experience includes senior portfolio management roles at AMP, Legal and General Life of Australia, PM Capital, QBE Insurance and Perennial Investment Partners. He has developed alternative methods to traditional market analysis and portfolio management, was a key contributor to the Eureka Report, and regularly appears on CNBC Asia and Bloomberg TV.

One of the most important factors in thematic investing is gauging the power of the regulatory forces that impact the theme. One of the most positive regulatory forces underway for “Car of the Future” is the initiative to promote zero emission electric vehicles and remove internal combustion vehicles from the fleet.



For example, on September 24, 2020, California Governor Gavin Newsom issued an executive order requiring sales of all new passenger vehicles be zero-emission by 2035.

According to the California governor’s office, the transportation sector is responsible for more than half of all of California’s carbon pollution, 80% of smog-forming pollution and 95% of toxic diesel emissions.

Starting on January 1, 2035, the executive order would ban the sale of new vehicles that are powered by an internal combustion engine, which includes gasoline, diesel and hybrid electric vehicles.

That means the vast majority of new vehicles eligible to California consumers from that point on will be full electric vehicles, or EVs.

History suggests that other states may adopt similar measures initially, while in the longer run the California order could become the blueprint for a federal initiative. Outside of the U.S., 15 countries have made similar pledges to the 2035 executive order. It's also important to note that if California were its own country, it would be the world's fifth largest economy in the world.

Essentially the global auto industry is moving in two long-term structural directions: greener (new energy vehicles) and smarter (autonomous and connectivity). It is likely that at some point these two concepts will ultimately merge into one product-the smart EV. Certainly, this will continue to benefit the holdings in the Car of the Future theme.

In fact, this is happening particularly fast in China, outside of the U.S., the world’s largest market. Beijing has also unveiled its ambition recently to completely phase out internal combustion passenger vehicles by 2035. Analysts have forecast China’s EV penetration will quadruple to 20% in 2025 from less than 5% in 2019 on the back of aggressive government subsidies and EV credits.



This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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ASR has no position in any of the stocks mentioned.

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