Responsible investing considerations can create opportunities... even in the automobile industry

February 21, 2020 Edward Golding

When speaking to clients across the country about MD Financial Management's investment strategy, I've noticed a growing appetite for responsible investing and a growing concern about the social impact of investments we hold in client portfolios.

From an afterthought, responsible investing has become a focal point for many physicians as awareness has grown on issues surrounding climate change, toxic emissions and waste, renewable energy, business ethics, corporate corruption, and accessible healthcare.

It is important for us to not only help doctors achieve their personal investment goals, but also reflect their social views in doing so. To help physicians take action with their investments, MD has incorporated responsible investing considerations when constructing client portfolios.

These considerations have led us to investments in innovative companies in industries, that at first glance may not fit the responsible investing narrative, like the automotive sector.

Trends driving innovation in the auto industry

Batteries in electric cars is the obvious opportunity that has caught the attention of conscious investors. However, batteries are just one component in a highly complicated machine in a rapidly changing marketplace (some of these changes are driven by social factors and others triggered by disruptive innovations and technologies).

The automotive industry is undergoing three long-term trends: the shift to autonomous vehicles, the shift from personal ownership and low utilization to shared ownership and higher utilization, and the electrification of vehicles as the burning of fossil fuels becomes less desirable.

Boosting demand

According to the International Energy Agency (IEA), the market for electric vehicles is still quite small, with approximately 2% global penetration. In 2018, the global stock of electric passenger cars grew to over 5 million vehicles (the vast majority being built and sold in China). The IEA forecasts that this number could grow to over 120 million vehicles by 2030.

One of the biggest drivers of electric vehicle adoption is government regulation and rebates. Some countries have even established timelines to ban vehicles powered by old-school internal combustion engines.

Enter Rivian, a private and responsible car company

We recently added Rivian to the holdings of the MDPIM Global Private Equity Pool. Like all holdings in the Pool, we applied a full responsibility assessment to Rivian before making any investment in the company.

Rivian was founded in 2009 and is an automotive technology company developing vehicles and other products and services related to sustainable transportation. Rivian has announced partnerships with online retailer Amazon and traditional auto manufacturer Ford.

The partnership with e-commerce giant Amazon involves building a fleet of electric delivery vans, crucial to Amazon's future operations. Rivian is in pre-production to deliver 100,000 vans by 2024 with the first vans to be on the road by 2021. The fleet, once completed, is expected to be larger than UPS, FedEx and DHL combined. With Amazon, Rivian is working with dozens of utility companies across the U.S. to ensure that the charging network will be supplied by sustainable power sources.

As the Ford Motor Company invests billions of dollars to transform itself based on the long-term trends we mentioned above, it will use Rivian's technology to power a host of vehicles in the near future, including a plug-in variant of its popular F-150 truck.

Rivian also produces premium consumer vehicles under its own moniker. The first two models, the R1T and the R1S, debuted at the LA Auto Show in 2018.

Rivian is an excellent example of an alternative investment opportunity in a private company that is expected to experience rapid growth over the next few years. It also fully incorporates social responsibility considerations into its operations and is a disrupter in an industry that does not typically fit the responsible investing mold. We see a lot of potential in the company's value proposition as it stands to benefit from stricter emissions regulations and the trend of vehicle electrification.

* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

About the Author

Edward Golding

Edward Golding, CFA, MBA, is an Assistant Vice President with the Multi-Asset Management team at MD Financial Management. He oversees the Canadian, Dividend and U.S. equity mutual funds and investment pools at the firm.

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