Tapping Into the Electric Vehicle Boom? Think Semiconductors

By Tomasz Godziek, Lead Portfolio Manager, and Daniel Lurch, Portfolio Manager of JSS Sustainable Equity – Tech Disruptors

At J. Safra Sarasin Sustainable Asset Management, we believe that investment opportunities exist throughout the electric vehicle (EV) value chain, and semiconductors, in particular, can offer an attractive way to gain exposure to the booming EV market.

What investment opportunities are there across the EV value chain?

The green transport revolution will benefit many companies and sub-sectors along the entire EV value chain, for instance, battery producers, original equipment manufactures, and electronics firms. However, within the relatively new EV industry, which is still in the early stages of a broad-based buildout, at J. Safra Sarasin Sustainable Asset Management we think that semiconductor firms appear to be well-placed in terms of competitive positioning.

Besides benefiting from rising volumes and higher semiconductor content per vehicle, they also enjoy high barriers to entry, strong market profitability, and pricing power.

Moreover, unlike some electronic component makers, they face little risk of in-housing from carmakers. Therefore, we favor playing the exposure to EVs through specific segments of the value chain, in particular semiconductor manufacturers.

(Global commitments to carbon neutrality have spurred adoption of EVs¹⁾

What role will semiconductors play in the next generation of cars?

Power semiconductors control the flow of electricity and are therefore critical to increasing the energy efficiency of electronic devices and, by extension, electric vehicles. We believe that semiconductor companies can expect significant near-term growth from the switch from internal combustion engines to battery electric vehicles.

Furthermore, next-generation vehicles that allow autonomous driving will require even more advanced components, including radars, and cameras to enable advanced driver assistance systems.

As a result, semiconductors will become increasingly essential, allowing the high processing power of enormous amounts of data and permitting real-time situational decision-making.

(EVs require more semiconductor content²⁾

Recently semiconductor shortages have been frequently in the news. What is your take on this situation?

Global demand for semiconductors has skyrocketed due to the growing demand for consumer electronics, driven in part by the COVID-19 situation. Semiconductor companies responded quickly to the increased demand but the lead time was too short. The manufacturing process for advanced chips is very complex and capital intensive, taking up to six months to complete due to the many inputs and processes involved.

As a result, some components are currently facing shortages. The strong demand however means that semiconductor companies are benefitting from high capacity utilization and pricing power, earnings and cash flows.

(Semiconductor manufacturing process)

Learn more about our Tech Disruptors strategy, which recently celebrated its three-year anniversary, in this video:

Semiconductors are a good example of how investors can gain exposure to disruptive tech themes. Can you tell us more about the investment approach of J. Safra Sarasin Sustainable Asset Management?

To harness opportunities across tech themes, such as the EV value chain, we have established a distinctive approach for the JSS Sustainable Equity – Tech Disruptors. In a nutshell, the main pillars of our strategy are: 

• Tech winners: Identify companies with strong competitive advantages, by focusing on those with high barriers to entry and scalable business models
  
  
• Multiple technology themes: Look beyond a single theme in order to maximize the full return potential of tech themes and therefore invest in a range of disruptive technologies. This broad exposure to themes also enables us to navigate different phases of the economic cycle through increased diversification
  
  
• Sustainability insights: We look at investments through the lens of sustainability, which helps us select companies that have strong ESG credentials, and provide solutions that improve environmental and social outcomes. This leads to better idea generation while increasing the quality and reducing the volatility in the portfolio.
  
  

• Read more Sustainability Insights from J. Safra Sarasin Sustainable Asset Management.ⁱ

[1] Deloitte, Electric vehicles – Setting a course for 2030, July 2020
[2] McKinsey, Mobility trends: What’s ahead for automotive semiconductors, April 2017
[i] This document does not constitute a request or offer, solicitation or recommendation to buy or sell investments or other specific financial instruments, products or services. It should not be considered as a substitute for individual advice and risk disclosure by a qualified financial, legal or tax advisor. Information containing forecasts are intended for information purposes only and are neither projections nor guarantees for future results and could differ significantly for various reasons from actual performance. In particular, neither the Bank nor its shareholders and employees shall be liable for the views contained in this document. The views and opinions contained in this document, along with the quoted figures, data and forecasts, may be subject to change without notice.