Clean Slate Newsletter #10

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ISSUE #10:  January 28, 2019

 

Can China win the race?

China has been pining to become a global player in the automotive industry for years.  However, these efforts have largely failed as the Chinese auto manufacturers have been unable to sell substantial volumes of vehicles outside of their home market.  This shortfall has been due to a number of reasons, but primarily is a result of the deeply entrenched manufacturing, supply chain and distribution infrastructure of the auto industry.  The shift to electric vehicles offers an opportunity to completely upend the historical hierarchy of the auto industry and China intends to win the game.

https://www.technologyreview.com/s/612566/why-chinas-electric-car-industry-is-leaving-detroit-japan-and-germany-in-the-dust/

 

The Future Today

For many people, environmental issues are good fodder for academic debate and they take comfort in the thought that the real challenges are so distant in the future that we don’t need to spend much effort on mitigation today.  But every so often, there is a news story that jolts us back to reality, reminding us that the negative impacts from our environmental challenges are happening right now.  One such example  is the economic impact of the lack of water in the rivers in Germany, which is a result of years of drought and poor water conservation.  The low water levels in Germany are restricting the ability to conduct commerce on the rivers, causing plant shutdowns and profit warnings.  Indeed our environmental issues are impacting our economy now and need to be resolved with action today.

https://cen.acs.org/business/economy/Low-flowing-Rhine-shuts-BASF/96/i48

 

What Would the Dinosaurs Have Done?              

It seems that in some parts of the country, drivers of internal combustion engine vehicles are blocking Tesla owners from using Supercharger stations.  This act is being termed “icing”, a play on the acronym for internal combustion engine (“ICE”).  We really don’t understand the logic behind such behavior but it does make us wonder if the dinosaurs acted in similarly strange ways as they faced extinction from climate change.  Bizarre.

https://electrek.co/2019/01/01/tesla-pickup-truck-drivers-supercharger-protest/

 

Cleantech 2.0

We often refer to the current clean tech investment era as Clean Tech 2.0, which we consider distinct from the first clean tech investment wave of 2006-2008 which ended poorly for many investors.  There has been much discussion and debate on the reasons for the high percentage of failure among the crop of Cleantech 1.0 investments, with most concluding that the technology just wasn’t scalable or that the levels of capital investment required were too high.  However, a study by professors from Stanford University digs a little deeper and comes to different conclusions.  Per the view of Stanford professor John Weyant and his co-authors, a good deal of the failure can be chalked up to poor execution and a lack of management experience, skills which are especially critical when trying to penetrate entrenched industries such as the energy business.  There is much better hope for the current clean tech landscape.

https://earth.stanford.edu/news/mining-cleantech-boom-and-bust-investment-lessons#gs.Zxwa3uAm

 

The Outlook for Battery Technology

Battery costs, particularly for lithium ion batteries, have been declining rapidly over the past few years enabling sharp growth in electric cars and buses.  While the near term outlook is good for continued declines in battery costs, thereby spurring greater growth in the adoption of electric vehicles in the next several years, much needs to happen to allow these continued cost declines.  To date, many of the recent cost-saving enhancements in lithium ion batteries have been propelled by improvements in manufacturing techniques or in tweaks to the chemistry of the battery cathodes.  In the future, greater leaps in the battery technology will be needed to sustain the pace of cost declines.  A good summary of lithium ion battery technology past, present and future:

https://www.bloomberg.com/news/articles/2019-01-06/before-the-electric-car-takes-over-someone-needs-to-reinvent-the-battery


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As of 12/31/18, the Fund's top ten holdings are Kornit Digital Ltd (5.03%), TPI Composites Inc. (4.13%), Lindsay Corp. (4.06%), Trimble Inc. (3.85%), Xylem Inc. (3.81%), Sunrun Inc. (3.69%), Watts Water Technologies, Inc. (3.52%), Raven Industries, Inc. (3.47%), Keyence Corp. (3.28%), and Kingspan Group plc (3.22%).

 
Important Disclosures:

The opinions and analyses expressed in this newsletter are based on Essex Investment Management Company, LLC’s (“Essex”) research and professional experience, and are expressed as of the date of our mailing.  Certain information expressed represents Essex’s opinion and assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is it intended to speak to any future periods.  Essex makes no warranty or representation, express or implied, nor does Essex accept any liability, with respect to the information and data set forth herein, and Essex specifically disclaims any duty to update any of the information and data contained herein.
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An investment in securities is speculative and involves a high degree of risk and could result in the loss of all or a substantial portion of the amount invested. The reader should not assume that investments in the securities described were or will be profitable. Past performance is not indicative of future results.

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