"When it comes to decarbonising the transport sector, one of the four major emitters of CO2, most people have so far thought of fuel cells and electric and hybrid engines for cars and trucks. Only very few were aware that bicycles can also make a significant contribution to this," says Tim Bachmann, who currently manages the DWS Invest ESG Climate Tech with around 275 million euros assets under management. This is because around three quarters of the greenhouse gases produced in the transport sector are generated in urban transport, i.e. on routes made for bicycles.
It has become apparent in the meantime that more and more people "have actually switched from the car to the bicycle for short trips". The delivery times for bicycles, which have now risen to up to twelve months, speak for this. The above-average increase in sales of cargo bicycles of 40 percent in the past year also suggests that bicycles are increasingly replacing cars in the everyday lives of city dwellers. In Bachmann's fund, shares in companies from the bicycle industry currently account for around 4.5 percent of assets under management.
Fighting climate change will cost over three trillion dollars by 2030/40 - per year
The DWS Invest ESG Climate Tech focuses on two main areas: First, it focuses on companies that help mitigate climate change. "For example, in order to achieve the goals set out in the Paris Climate Agreement, global investment must increase to over three trillion dollars annually by 2030/2040. This is roughly equivalent to the gross domestic product (GDP) of the United Kingdom or France," Bachmann explains the need for investment.
The second investment focus is on shares of companies that contribute to an adaptation to the symptoms of climate change that can already be observed today. "These include allergies, for example, due to the advance and extension of the pollen season, but also new diseases that are spreading into the northern hemisphere, such as malaria or chikungunya fever. For the corresponding adaptation strategies, another 150 billion to 300 billion dollars per year must already be made available today," says the portfolio manager.
E-bikes expected to drive growth in the bicycle industry
Currently, the global market for traditional bicycles and e-bikes, at around 45 billion dollars, is already on par with its counterparts for motorbikes, 39 billion dollars, and campers, 50 billion dollars. According to Bachmann, growth in the coming years is likely to be driven by e-bikes: While just around one million of these bikes were sold in Europe in 2015, the number was already around 3.8 million in 2020 and is expected to triple to almost twelve million by 2025. "Above all, the improved range of the batteries will ensure increasing acceptance by all age groups and social classes," says the ESG expert.
The picture is reversed for traditional bikes: while in 2015 around 20 million of these bicycles were still crossing the counters, by 2020 there were only 17 and by 2025 there are likely to be only 16 million.
In addition to the overall increase in awareness of the potentially dramatic consequences of climate change, financial incentives are also likely to have encouraged many people to switch to cycling. "As part of the EU's 'Green Deal', for example, 20 billion euros are available to promote urban mobility. The majority of the funds will be used for the expansion of cycle paths, but part of it will also be used to subsidise the purchase of new bicycles. In Italy, for example, you get up to 500 euros when you buy a bike," says Bachmann.
In his opinion, the infrastructure, which has already been improved in many ways, has also contributed to the demand: "In cities, parking spaces and roads are being reduced and replaced by cycle paths or shared cycle and bus lanes. In addition, parking on cycle paths is penalised more severely, the distance when overtaking in and out of towns must be greater and lorries are now only allowed to drive at walking speed when turning. This makes it a little safer to be on the road as a cyclist," says Bachmann, who as a passionate racing cyclist covered about 8,000 kilometres last year.
Quasi-oligopoly makes suppliers particularly interesting
Similar to the automotive sector, investors can also invest in the bicycle industry either through the shares of the manufacturers or the shares of the suppliers. "Suppliers that have a quasi-oligopoly with correspondingly large market shares, high margins, good balance sheets and strong pricing power appear particularly attractive," explains the portfolio manager. This includes, for example, suppliers of drives, brakes and battery cells specially developed and produced for e-bikes.
Although the suppliers, like most manufacturers, are currently comparatively highly valued, the bicycle industry also has very good prospects. "Capacities are being utilised at 80 to 90 per cent. Delivery times are nine to twelve months - in some cases there is nothing at all available. The companies can therefore retroactively adjust the prices for bicycles and components ordered last year by ten percent in some cases," says Bachmann.
There is also visual growth in the long term. E-bike penetration in Europe is already quite high, for example, in Germany the share of new annual sales is 30 per cent, in the Netherlands even 50 per cent. "But in Great Britain and the USA it is just one to two percent. And in both countries, subsidies, which are in the pipeline at varying degrees of maturity, can create additional demand. This topic is still below the radar for many investors and therefore offers potential," the portfolio manager expects.
Sabina Diaz Duque
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About DWS Group
DWS Group (DWS) is one of the world's leading asset managers with EUR 793bn of assets under management (as of 31 December 2020). Building on more than 60 years of experience, it has a reputation for excellence in Germany, Europe, the Americas and Asia. DWS is recognized by clients globally as a trusted source for integrated investment solutions, stability and innovation across a full spectrum of investment disciplines.
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