“There is no industry without disruptions,” said Dr. Hendrik Leber at the end of the first video in our interview series, that was held in German. Our economic structures are therefore in a constant state of transformation. And it seems to be getting faster and faster. One topic that has been discussed on a broader and longer basis is digitization. Companies such as Alphabet, Facebook and Netflix are changing the world. But we are also experiencing upheavals in other economic sectors that are worth discussing. Jochen Wermuth from Wermuth Asset Management made an exciting contribution to this at ValueWeekend 2018. With his lecture “The Green Industrial Revolution”, he draws attention to the opportunities offered by the necessary transformation to a more sustainable economy.
Jochen Wermuth: The green industrial revolution
Jochen Wermuth makes clear in this lecture which chances the inexpensive energy production by renewable energies and the electromobility open. Meanwhile it is possible to produce energy from renewable energies so cheaply that many oil and coal producers can no longer keep up with it. Jochen Wermuth goes even further for the future. He predicts an “energy flat rate for all”.
He also makes it clear that there will be upheavals in the automotive sector, which many of the classic automobile manufacturers are unlikely to survive. Jochen Wermuth sees little future for combustion engines. A glance at China shows that the transition to electromobility is in full swing there. Electrically powered cars are more durable and less susceptible to maintenance. Soon it could also be possible that car owners can earn money through the energy-storing batteries of electric cars paired with solar energy generation.
Selfdriving electric cars can further turn the classic business models of the automotive industry upside down: The classic ownership model of cars could be called into question by selfdriving electric vehicles that can be quickly made usable via platforms.
Jochen Wermuth warns in his lecture “The Green Industrial Revolution” Value Investors to take care of the “Carbon Bubble”. Many of the assumptions about future earnings in the oil and coal industry will be challenged by low-cost renewable energy generation. There could soon be massive write-downs and reductions in sales forecasts. If legislators set a fair price for CO² in the future, this process could be accelerated. Currently, CO² is subsidised because the emitters do not pay the full cost of their emissions, according to Jochen Wermuth. The divestment investment movement can also exert additional pressure on oil producers and oil-producing countries. For these reasons Jochen Wermuth is therefore long for countries that import oil and short for oil exporters.
Tony Seba: Clean Disruption – Energy & Transportation
Tony Seba has been working on the topic of disruptions for a long time. In his lecture, he makes it clear how the interaction of different disruptions in different economic and technological areas can lead to major structural changes. A historical example of this is the smartphone.
He sees similar changes as through the smartphone in the energy sector and in the automotive sector. According to his forecast, e-mobility and self-propelled cars used via platforms will cause major upheavals: electric drives will increase the durability of vehicles. Selfdriving cars that work in conjunction with mobility apps can significantly increase vehicle utilization. This can lead to an 80% reduction in the automobile fleet – with consequences for the automobile and oil industries. But the use of space in cities could also change considerably and many car parks could soon be without customers.
Similar to Jochen Wermuth, Tony Seba also argues that renewable energy generation will lead to massive changes in the energy market. Companies will be one of the drivers here. But also private households can accelerate the demand, if they can soon produce cheap renewable energy for their self supply.
The Green Industrial Revolution – A Conclusion
When it comes to future investments, value investors should definitely think about the changes mentioned here. There are forces at work that have a strong impact on various industries. Caution is called for when investing in these sectors: companies that at first glance look like a bargain can prove to be value traps as a result of the green industrial revolution. However, with prudence and a close look at the industries, many opportunities can also be identified that long-term investors can use to their advantage.