VW shifts to EVs in the race to net zero

investment viewpoints

VW shifts to electric vehicles in the race to net zero

Ashton Parker - Head of Credit Research

Ashton Parker

Head of Credit Research
Thomas Höhne-Sparborth, PhD - Head of Sustainability Research

Thomas Höhne-Sparborth, PhD

Head of Sustainability Research
Emi Hu - Quantitative Analyst

Emi Hu

Quantitative Analyst

Need to know

  • Transportation is the third-highest producer of C02 emissions. To help reach the net-zero goals set out by the Paris Agreement, sales of electric vehicles (EVs) must outpace gas or diesel-based models.
  • Over 25 countries, such as Germany, the UK and India, have banned the production of gas and diesel vehicles by 2030, with many others following suit. How should decarbonisation-focused investors approach the auto sector?
  • In our view, Volkswagen1 is what we define as an ‘ice cube’: a company that is decarbonising rapidly in a sector where emissions are hard to abate. 

 

Putting emissions on ice

Transportation is the third-highest producer of C02 emissions, accounting for almost a quarter of emissions globally2. Especially when downstream scope 3 emissions are taken into account, it is a hard-to-abate sector where real decarbonisation is needed to make the net-zero transition happen.

It is therefore essential that the sector features what we call ‘ice cubes’: transition leaders whose genuine progress on emissions reduction is helping to cool the economy.

Mass adoption of electric vehicles (EVs) is critical in reducing emissions and air pollution, which has resulted in the UK, Canada, France and India officially banning the production of new diesel and gas cars in the years to come. Other mass car-producing nations – such as the US, China and Japan – are looking into doing the same3.

As a result, EV manufacturing is accelerating and more household marques are on the road to an electric future. This shift has investment implications: car manufacturers who are gearing their business models towards cleaner cars should overtake those who are unable or unwilling to change and will inevitably incur transitional risks, as consumers tur away from fossil-fuel-based cars and regulators and markets request the disclosure of downstream scope 3 emissions.

We believe Volkswagen (VW)4 is on the inside track, due to measures it is taking to reduce transitional business risks. From the nadir of ‘dieselgate’, VW has overhauled its operations to substantiate its rebranding as an auto manufacturer journeying towards a carbon-neutral future.

How is VW achieving real decarbonisation, why do we believe it is on the road to net zero, and why do we judge it to be an ‘ice cube’ whose emissions-reduction progress will help cool the economy?

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Sources

Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.
2 International Energy Agency: Transport. October 2021.
4 Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.

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