Tesla - Portfolio Addition

I have been a long term follower of the fortunes of this iconic company. For many years it has been loss-making however, over the past year it has turned a profit in each of the past four quarters and sentiment seems to be more favourable. The share price has responded accordingly and moved above $300 earlier this year. 

With a market cap. of $300bn it has now overtaken Toyota to become the world's most valuable car maker.

The company made $104m profit in the second quarter to end June and is now eligible to join the S&P 500 which would give the shares a further boost as they would need to be picked up by index trackers. The company have an ambitious target of 500,000 cars this year.

The company has been a long-term constituent of Scottish Mortgage Trust and in the recent annual report, manager Tom Slater said:

"With consumer internet development muted, it has been left to Tesla to uphold the reputation of West Coast America for bringing disruptive innovation to the world. It has made remarkable progress. The vision and ambition at Tesla have always been clear but at times the company has struggled with execution. That has changed. Steadily increasing and profitable production of the Model 3 sedan has been accompanied by the successful (and earlier-than-planned) production ramp of a new SUV, the Model Y. At the same time the company has completed a second production facility in Shanghai and launched a pickup truck which has already amassed hundreds of thousands of pre-orders. This progress has come amidst delays, cancellations and false starts in electric vehicle production for the established auto manufacturing industry. We wish we could find other big companies that were making such progress in the move to a sustainable energy economy".

Tesla has become the top holding in the trust and is valued at just over £1bn and currently accounts for 11% of the SMT portfolio. It is also the largest holding in my Baillie Gifford Positive Change but the entire fund currently accounts for less than 2% of my green portfolio.

Tesla is clearly the global market leader in the electric car market with around 75% of the US electric vehicle market and 25% in China. Tesla's lead in battery technology should help it to maintain this position as it continues to make improvements and new models and also looks to reduces prices as it scales up production. It has its main plant in California but has expanded into China and is looking at new plants in Berlin and Texas.

EVs accounted for 2% of all global car sales in 2019 but this is forecast to rise quickly to over 30% by 2030 as more emphasis is placed on climate and the environment.

Clean Energy

In addition to cars, it offers solar+battery storage solutions for domestic and commercial customers. This has the potential to become larger and more profitable than the auto division. In 2019, the company declared an ambition to become a global energy distributor. 

Battery storage capacity is transforming the traditional electricity grid and will be a crucially important part of the global transition from fossil fuels to clean energy. Tesla have designed and manufactured a utility-scale storage system called "Megapack". These can be installed in as little as three months to provide 250MW of clean energy at a fraction of the cost of a traditional gas-fired power station.

 

Megapack installed at Hornsdale, South Australia

Indeed, they have now applied for a license to generate electricity in the UK. Obviously the battery technology used in cars can be used to store energy from renewable energy such as solar and wind. The firms software called "Autobidder" enables the company to trade renewable energy more efficiently.

They are currently looking at virtual power systems where customers install solar+battery. Instead of selling excess power back to the grid on an individual basis, a whole community can pool resources via a virtual power plant. It is likely that Tesla clean energy will become a large part of Tesla's activity in the future.

 

past 12 months

It is this part of the business that has finally persuaded me to add the shares to my portfolio despite the 3-fold increase in the share price since the start of the year. So, having put my reservations about CEO Elon Musk and his involvement with SpaceX activities to one side, the shares were added to my green portfolio last week at the price of $283 (£220). The recent rise in the value of GBP v USD has made the shares more attractive. They've obviously had had a good run in recent months so I am prepared for some volatility and pull-back but I am hoping the longer term prospects remain positive.

The shares replace Air Liquide in my green portfolio.

[Update 21/8/20...sold half of my shares @ $415 and gain of 46%]

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation. Individual shares usually carry more risk than collective investments such as index funds - always DYOR!

The Carbon Budget - An Introduction

[N.B. This article is mainly about climate change. If this subject is of no interest to you please feel free to skip]

A basic understanding of our global carbon budget is essential for anyone who wants to get to grips with climate change. It was one of the stand-out elements of learning for me when researching material for my latest book "Climate Emergency!".

What Is It?

Just like good housekeeping where we adjust spending according to income, a carbon budget will tell us how much carbon dioxide we can put into the atmosphere over a given period of time to keep within a certain temperature range.

The Intergovernmental Panel on Climate Change (IPCC) have determined that global temperatures should be kept well below 2.0C by the end of this century and the aim is for a limit of 1.5C. 

Global average warming has risen by 1.1C above pre-industrial baseline so far. Warming in the polar regions is twice the average and temperatures in Siberia this summer reached an all-time high of 30C causing extensive wildfires and smoke visible from Alaska.

In the past week we hear that the iconic polar bears will become extinct by the end of this century as the Arctic sea ice disappears.

We are currently on track for 3.2C by 2100 so clearly some big changes are needed if the targets are to be met. Fortunately our global response to Covid-19 has demonstrated that we are capable of implementing big changes to the way we live when the threat is apparent.

What Are the Main Causes?

Global warming is mainly caused by the release of greenhouse gases (GHG) such as carbon dioxide, methane and nitrous oxide. The main source of these GHGs is from our use of fossil fuels such as oil, gas and coal which are all widely used all around the world...for transport - cars, lorries, airplanes, industrial processes such as steel and cement production, energy production and heating our homes and places of work.

These gases hang around in the upper atmosphere for many years. In the case of carbon dioxide, over 100 years. Each year we accumulate more and more GHGs and as a result the planet gets warmer and warmer.

How Long Do We Have?

Globally, the climate science indicates that we can be fairly sure that adding another 380 gigatons of carbon will take us to 1.5C. We have been adding around 40 gigatons each year so if we carry on at the same rate, we will reach 1.5C by 2030...less than 10 years. It does not seem that long ago since we were enjoying the London Olympics - Mo Farah & Jess Ennis winning gold medals on super Saturday was just 8 years ago in July 2012.

These annual accumulations can be thought of in terms of filling a bucket. When the bucket is full, it's 'game over'. Greta Thunberg shared a graphic from climate scientist Glen Peters which describes this concept.

So, at the current rate of emissions we seem to have maybe 8, 9 or 10 years left before the bucket is full.

With a target of 2.0C, the limit for carbon emissions rises to 1,630 gigatons which would be reached by the year 2060 at current levels of emissions output. Needless to say the impact of climate change would be far worse at this higher temperature with the risks of runaway warming increasing exponentially.

A Full Bucket

Most people will be aware of the impact of rising global temperatures - increased wildfires, rising sea levels, more intense storms, droughts etc. However, what the scientists are very concerned about is the catastrophic effects of triggering an irreversible tipping point - a point of no return.

When we reach and exceed 1.5C, the climate scientists are warning of runaway warming where whatever steps we take after that point would not reverse the process. We could trigger one or more tipping points which create a feedback loop which trigger more tipping points leading to exponential warming. Like a runaway train.

These tipping points could be large scale melting of the Greenland or Antarctic ice sheets leading to accelerated sea level rise, continued destruction of rainforests in Brazil and West Africa, the melting of frozen tundra releasing huge amounts of methane which is 20x more potent than CO2.

Prof. Tim Lenton in this article by Carbon Brief suggest these tipping points are like a game of Jenga. With each annual increase in temperature, a brick is removed and the tower becomes increasingly unstable...but we don't quite know when it will collapse.

Of course, this begs the question - why do we continue with the game year after year? Do we have a collective death wish?

What To Do?

This year we have all been preoccupied with Covid, naturally. But although the lockdown has led to a fall in global GHG emissions, it will be no more than a temporary blip if we carry on as before when we eventually unlock.

Personally, I think we all need to start treating the climate situation as a crisis or emergency and make some changes. Clearly the biggest part of this problem is the continued use of oil, gas and coal. This needs to stop. Obviously, as investors, the first and most practical step would be to divest (remove) our portfolios of fossil fuel companies.

It should be a fairly simple process with individual share holdings like Shell and BP. Sometimes it is less obvious with managed funds so make a point of finding out whether the funds in your portfolio hold fossil fuels.

Many investors will probably have a significant proportion of their portfolio in the low cost index funds and inevitably these will all hold quite a significant element of the big oil & gas companies such as Exxon, Chevron and also coal producers such as BHP, Glencore, Adani, Peabody etc.

credit : officeguycartoons.com

There are now an increasing range of alternative low cost index funds which exclude these carbon-intensive companies such as the iShares ETF I featured in this recent article.

Many will have a pension and a target retirement date many years ahead. If it's a SIPP then we can make any necessary changes to our portfolio. If it's a works pension then make a point of finding out where the managers of the fund invest the money and make sure yours is invested in a climate-friendly option.

Of course, investments are just one small part of the equation and we really need to look at all aspects of our lifestyle. Here are a few suggestions from an article in 2018:

·  think about reducing consumption of meat or going veggie

·  look into the option of electric cars or even car share

·  walk or cycle short distances (2 miles or less)

·  think about food miles and choose local produce

·  think about second-hand clothes from charity shops rather than new

·  think about UK holidays to avoid air travel/cruises

·  put on an extra layer of clothing rather than turn up heating

·  look out for opportunities to plant a tree in your community

·  support an environmental organisation

Feel free to add your own lifestyle suggestions in the comments below.

The urgent response to the coronavirus pandemic suggests the global community can move very quickly when faced with a huge and immediate threat to life. This gives me optimism that we can respond to the impending climate crisis...it just means our leaders need to listen to the climate science and respond with a "whatever it takes" attitude they adopted for Covid...and quickly...before that bucket fills to the brim.

We are pushing them to the edge of extinction....

The bottom line is that all of this is man-made warming so if we are responsible for causing the problem, we must be capable of solving it.

Over to you...share your own thoughts; are you concerned about these issues or fairly relaxed; what more should our government be doing; would changing our lifestyles make any difference if other countries carry on with business as usual?

Personal Assets Trust - Full Year Results

This capital preservation investment trust was added to my portfolio in May as I was re-evaluating asset allocation following the Covid-19 shock to global markets.

It has a simple objective - to protect and increase (in that order) shareholder funds.

Results

The trust has recently published results for the full year to end April 2020 (link via Investegate).

Over the past 12 months, net assets have increased by 5.3% compared to a fall of -19.8% for the FTSE All Share index. The trust's share price is maintained close to NAV and the price increased by £25.00 to £433 at 30th April. Over the past 5 years NAV has increased by 21.9% compared to -13.2% for the FTSE.

At the end of the period, asset allocation remained defensive with liquidity at 55% (cash, gold and bonds etc.).

During the first 9 months, equities were reduced to 30%, the lowest for a decade however during February and March, equity levels were increased taking advantage of the sell-off which included the addition of new holdings in Google, medical devices company Medtronic, life sciences specialist Agilent and Visa.

 

PNL v FTSE All Share past 12 months
(click to enlarge)

Commenting on the results, investment manager Seb Lyon said:

"We are relieved by the resilience shown by many of PAT's holdings during the sell-off. The trust's equities held up far better than UK and global equity indices. The mundane activities of selling coffee, chocolate, toothpaste and pet food demonstrated the longstanding merits of staples companies like Nestlé, Unilever and Colgate. Elsewhere, technology companies with recurring revenues, like Microsoft, proved suitably defensive, thanks to the need for millions to work from home during lockdown. Franco-Nevada, the gold royalty company, was our best performer. Gold bullion rose, proving its value as a hedge against the dire economic and monetary uncertainty unleashed by the pandemic.

Sebastian Lyon

Central banks with little room to cut interest rates sufficiently to offset the downturn moved further down their unorthodox monetary playbook, ratcheting up record levels of quantitative easing ("QE") to fight deflation through currency debasement. This helps to explain the rise in the gold price, thanks to gold's status as "the currency that cannot be printed". In some cases central banks have crossed the Rubicon in financing fiscal spending directly, risking an inflationary environment later this decade. This should continue to support the bull market in gold that began almost 20 years ago. However, fixed income as an asset class now offers yields of close to nothing, signalling that the 40-year-old fixed income bull market may be coming to a close. There is certainly little upside without yields turning negative".

The trust has paid a small dividend of £5.60 p.a. (paid quarterly) for several years and say this is likely to continue for the foreseeable future.

Holdings

Currently equities make up just under 45% and top portfolio holdings include Microsoft (5.8%), Google (4.1%), Unilever (4.0%), Nestle (4.0%), Philip Morris (3.1%), Visa (3.0%) and Diageo (2.9%). 

On a personal level, I would be happier if the trust disposed of the tobacco holdings and moved towards more sustainable sectors such as renewable energy and I have emailed the managers to express my reservation but at least they have disposed of their holding in a Canadian oil company.

Index linked bonds make up just over 30% with cash and UK treasuries a further 16%. Gold accounts for just under 10% of the portfolio.

Ongoing charges are 0.8%

The shares were added to my portfolio at £432 in early May and have advanced to currently £448... an all-time high point.

I think in these uncertain times it's probably a sensible idea to think about the potential downside of the markets and with an eye on capital preservation. I have also added the Trojan Ethical fund to my green portfolio which is managed by the same stable on very similar lines (but excludes tobacco). These two combined make up around 6% of my portfolio.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Polar Cap Technology - Full Yr Results

The Covid-19 pandemic has buffeted the global economy in quite an extraordinary and unexpected way these past few months. Many sectors have been hit very hard - travel & leisure, cruise industry, oil & gas to name a few but the lockdown and social distancing means we all have to adapt to find new ways of doing things. Millions have been working from home, children are getting online lessons and there has been an increased demand for home entertainment. 

All this has been a big positive for the tech industry...and is likely to continue.

Polar Capital Technology was added to my portfolio in June 2018. The trust briefly left my portfolio at the end of last year when I needed additional funds for some of my 'green' acquisitions but was repurchased during the meltdown in March.

Launched in 1996, the trust has grown rapidly and now has assets under management of over £2.5bn. It is a global trust  however 70% of the holdings are listed in the US. That said, many of these US-listed companies such as Netflix, Microsoft, Apple and Alphabet (Google) are truly global. The trust has been managed by a team led by Ben Rogoff since 2006.

The trust has just over 100 holdings and the top 10 account for 41% of the portfolio. These tech companies are fundamentally transforming the way we live our lives in a similar way to the impact of the industrial revolution 200 years previously. Current largest holdings include all the usual suspects...Microsoft (10.0%), Apple (8.2%), Google (6.3%), Facebook (4.0%), Samsung (2.7%) and Amazon (2.7%).

I believe the long term growth prospects for the technology sector offer investors significant rewards. Yes, these tech stocks have done well since the market turmoil of 2008/09 - PCT share price up 578% over the past decade - and there is likely to be some volatility as we have seen earlier this year (and today down 5.9%) but I see no reason why the sectors ability to disrupt and grow should not continue.

Indeed, I have recently added Microsoft and Google as stand-alone additions to my green portfolio taking advantage of the dip in prices during the Covid sell-off.

Results

The trust has today released results for the year to end April 2020 (link via Investegate). Net assets have increased by 18.6% compared to the benchmark World Technology index 18.1%. Over the same period, the FTSE All Share declined by -16.7%. The share price has moved from a discount last year to trade at a premium and therefore the shares have returned 31% over the year.

3 Yr Chart PCT v FTSE All Share
(click to enlarge)

Commenting on Covid, the manager says:

"COVID-19 represents one of those generational moments when normality is suspended. Usually, these are deeply personal moments when the passage of time is interrupted by news of serious illness or an unexpected development that changes everything. Once life restarts, for some it simply snaps back to its earlier state. But for many, the timeout allows them to recalibrate and focus on what really matters to them. Our sense is that COVID-19 will result in societal recalibration - permanent changes that persist long after the pandemic - many of which will seem obvious in the fullness of time. The success of work from home (WFH) together with challenges to mass transit systems posed by social distancing means that many of us are unlikely to work as we did previously. This may have a profound and lasting impact on demand for commercial property, coffee shops (as a 'third space'), business travel and even the role of cities. Rather than trying to move people at high speed in and out of business hubs (with HS2 expected to cost more than £106bn) perhaps infrastructure spending should be redirected to providing nationwide high-speed Internet. If we came to dominate the world because sapiens were the only animal able to assemble and cooperate flexibly in large numbers, then in a socially distanced world the case for universal internet access has never looked stronger.

In time, remote work could allow companies and people alike to relocate anywhere with a good Internet connection, akin to how containerisation eliminated the need for factories to operate near ports. Hard fought freedoms may be surrendered in order to contain future outbreaks with thermal cameras, quarantine and state-level surveillance becoming the norm. Myriad industries (travel, hospitality, retail, manufacturing, sport and fitness, communal worship) may need to be reimagined in order to comply with social distancing. The use of physical cash, how we greet friends and strangers and perhaps most importantly, our relationship with our planet all appear subject to change too. Perhaps the stark reality of COVID-19 will allow us to address issues seemingly impossible today, with the UK Prime Minister's own experience presaging a renewed focus on obesity and healthier living. We are also likely to see an acceleration in the trend of deglobalisation and reshoring because synchronised demand for critical items such as PPE and paracetamol, exposed frailties associated with global supply chains. Relying on India and China for 84% of the world's paracetamol now not only looks incredibly reckless but may embolden those who believe capitalism requires closer supervision".

...and concludes

"The current crisis has shown the modern world is built on technology. Trends we have witnessed and written about for many years have accelerated during the crisis, and many will remain at structurally higher levels once the crisis recedes. The self-induced nature of the downturn together with unprecedented fiscal stimulus that in the UK has seen 8.4m jobs furloughed has frustrated the 2008/9 'playbook' and leaves us hopeful that recovery may positively surprise us too. Our process and experienced team of nine dedicated investment professionals (including two new additions during the past year) remain well-positioned to assess and invest in this ongoing structural change, and we look forward to many more years of growth for the technology sector".

ESG and Climate

On a personal level, I was pleased to note that the trust has recently introduced a ESG scoring/analysis framework to assess holdings and challenge underperformers or avoid those companies with low ESG ratings. Global data centres are responsible for around 2% of total CO2 emissions however despite a three-fold increase in workload over the past 5 years, energy usage has remained flat due to the move to renewable forms of energy and greater efficiency. It is suggested that the move to cloud could reduce energy consumption by 87%.

The technology sector is uniquely positioned to provide the innovation and scale required to address the existential challenges posed by climate change.

The shares were repurchased in my SIPP in April using some of the remaining proceeds from the sale of my Vanguard Lifestrategy index fund. The price was £15.90 just missing the low point of sub £13 a couple of weeks earlier. The current price is just over £21 so a nice gain of 30% since repurchase.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

iShares MSCI World SRI Fund

It's been almost two years since I decided to bring my investments more into line with my values and lifestyle. Part of this process has been to divest my portfolio away from fossil fuel companies such as Exxon and Shell and also the big banks which finance their planet-destroying activities. This has inevitable involved the sale of my multi-asset global index funds such as Vanguard Lifestrategy. I looked around for an alternative in the ESG range of funds but all seemed to hold these fossil fuel companies.

Earlier this year I made the case against investing in the traditional index tracker.

"Obviously, the starting point for any responsible investor is to avoid the sectors which are the most polluting - coal, oil and gas. However, this is currently almost impossible to achieve by adopting the passive approach, even using the so called ESG funds, they all seem to hold the big oil companies and the big banks which fund their continuing operations for exploration and drilling".

I was therefore pleased a few months later when a reader flagged up this global index fund from iShares in a comment to a recent article and I decided to take a closer look.

This fund was first launched in 2017 but in November 2019 it adopted a new benchmark by moving from the MSCI World SRI Select to the new SRI Select Reduced Fossil Fuel Index (RFF)

RFF Index

This index has just 372 holdings compared to 1,600 for the traditional global index fund. The index (link to pdf) has been created for those investors looking for a socially responsible investment benchmark made up of companies showing strong sustainability qualities whilst avoiding  a range of sectors which are unethical and including fossil fuels. It therefore screens out companies involved in weapons, tobacco, alcohol, gambling, nuclear power, adult entertainment and GMO.

In the past these responsible funds with a focus on ESG - ethical, social and governance - tended to all include the big oil companies but would generally hold a reduced weighting to the standard global index. However this index specifically excludes companies with exposure to fossil fuels.

The companies that make it through are then assigned an ESG rating which indicates a companies ability to deal with ESG risks relative to others in the same sector and excludes those which are below average.

This is the first fund I have seen which specifically excludes these fossil fuel companies - oil & gas, thermal coal, power generation oil sands extraction.

The index has returned an average of 9.2% p.a. over the past 5 years to end June 2020 compared to 7.5% for the World Index. This is not really so surprising given the poor performance of the energy sector in recent years.

Here's a short extract from MSCI  on their principles of sustainable investing:

"This rapidly changing world also presents investment opportunities on an unprecedented scale. Development of alternative energy sources could lead to transformative new products that cut our dependence on fossil fuels. Advances in technology could help resolve food and water shortages and enable us to grow sustainably within the limits of the planet’s resources. The next phase of the information revolution could lead to quantum improvements in productivity and connectivity in a manner that could enrich the lives of the socially and economically marginalized.

We believe that this convergence of factors (climate change, social attitudes, institutional governance, technological innovation) will significantly impact the pricing of financial assets and the risk and return of investments and lead to a large-scale re-allocation of capital over the next decades. Investors who treat these factors as a fad and continue to operate in a wait-and-see mode could find themselves unprepared for the dramatic repricing of assets that could result".

The Covid-19 pandemic has shown how quickly unsustainable sectors can become exposed to a sudden shock to the system. For example, the drop in the price of oil has seen the share price of Exxon plummet and the value of this once-dominant oil major has now been overtaken by Tesla. BP is not far from being overtaken by offshore wind specialist Orsted. This is a real changing of the guard as we transition from fossil fuels to cleaner forms of energy such as solar and wind.

I was interested in this recent article reporting that Wood Mackenzie, a global energy consultant has estimated that $1.6 trillion has been wiped from the oil & gas sector this year so far with more to come. BP last month cut the value of its assets by $17.5bn and forecast the value of oil will be lower for decades whilst Shell announced a $22bn writedown in the value of its assets and cut its dividend by two thirds. It's not hard to conclude that the whole sector is in crisis and that a fundamental shift is taking place as the world starts to take climate change more seriously.

I'm not sure why anyone would want to continue investing in a carbon-intensive sector where $billions worth of projects, financed by governments and the big banks, are at serious risk of becoming worthless - so called stranded assets.

All investors, large and small, have a choice over where to invest. Many are divesting away from fossil fuels realising that the smart money is increasingly moving into sectors which offer sustainable and long-term solutions to the climate emergency and away from those companies and sectors which continue to be part of the problem.

I believe we have a window of opportunity to make a difference - maybe 5 or 10 years before the risks posed by the climate crisis become irreversible. I believe we can all make a difference and the small diy investor can now choose to continue with the traditional index or move to a cleaner index provided by these new fossil-free funds. This fund will now be placed on my watchlist and likely added to my green portfolio in the near future.

If you have any thoughts or opinions on investing in the oil & gas sector, climate change issues and passive index funds, feel free to share them in the comments below.

Octopus Renewables - Update

Last December this new investment trust launched on the UK market via an IPO. It was hoping to raise £250m but actually managed £350m. I applied for some shares via my broker AJ Bell but was unable to obtain my full allocation. I topped up a couple of weeks later so my average price was 103p.

Since the launch the company have exchanged contracts in March to acquire an onshore windfarm in Sweden consisting of 12 turbines with a capacity of 48MW. The project should become operational in the second half of 2021. The cost was €68m.

Also in March ORIT acquired a portfolio of 8 UK solar farms with a combined capacity of 122.8MW for £144m. These began operations between 2013 and 2015 and have an average remaining life of 23 years and all qualify for the governments ROC subsidies. (Full company investment update)

These two purchases account for around 59% of the funds raised at the launch. The board and investment advisers are confident that the remaining funds will be deployed in further acquisitions by the Autumn. They are currently looking at solar and onshore wind in UK, Spain and France as potential targets.

They confirm that a dividend of 3p will be paid out during the first year and the first payment will be made in August (I assume 1.0p) and thereafter quarterly.

 

2020 YTD

The share price has bounced back nicely post Covid to currently 112p having dipped as low as 92p in mid March. The trust makes up around 4% of my green portfolio.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!

Ballard Power - Portfolio Addition

Ballard Power (BLDP) is a Canadian-based engineering company founded in 1979 and has a long history of involvement in the development of fuel cells. As far back as the early 1990s it was engaged with General Motors on a fuel cell powered passenger bus and by 2003 they had launched 30 clean energy buses throughout Europe as well as in Australia and China.

In May of this year the company celebrated 25 years listed on the Nasdaq Exchange.

In 2016 they formed a strategic partnership with Zhongshan in China with plans for the deployment of 300 fuel cell buses and the following year became the first company to clock up over 10 million cumulative kilometers of revenue service.

The company has links with several sectors but is mainly focussed on heavy-duty transport - bus, train, lorry and marine. They have operations in Canada, USA, Europe and China where they have several joint ventures with the likes of WeiChai, Zhongshan and Synergy.

Last week Ballard announced a $7.7m order from Synergy which indicates further progress in a market where Ballard technology already powers 650 fuel cell buses and over 2,200 zero-emission trucks.

Earlier this year the UK government announced a £5bn plan to enhance bus and bicycle infrastructure and the deployment of at least 4,000 zero emission buses.

Jo Bamford, owner of Wrightbus said, “Cities around the world are seeing massive reductions in air pollution as many vehicles have been kept off the road during the pandemic. However, the reality is that if we just go back to how public transport has traditionally been run, levels of pollution will quickly rise again to the same levels as before the crisis. We have an opportunity, working with Ballard’s leading-edge technology, to build hydrogen powered buses that will make a huge difference to air quality, as well as generating U.K. jobs. Therefore, our organization is strongly encouraging DfT to provide funding support for the deployment of 3,000 Fuel Cell Electric Buses, as part of the U.K.’s National Bus Strategy.”

Ballard, Wrightbus and Ryse Hydrogen are founding members of H2Bus Consortium which aims to deploy at least 1,000 hydrogen fuel cell buses throughout Europe.

Ballard currently has orders for delivery of 127 zero-emission buses in several countries including the UK, Germany, Netherlands and Italy. Under the EU Clean Vehicle directive, up to 45% of all bus purchases over the next 5 years must be zero emissions rising to 65% for the following 5 years to 2030.

Results

Commenting on the latest full year results released in March CEO Randy MacEwen said,

“We closed out 2019 with high activity levels, record quarterly revenue of $41.9 million in Q4, and full year revenue of $106.3 million, exceeding our full year outlook. Gross margin for the full year was 21%, Adjusted EBITDA was ($28.2) million and year-end cash reserves were $147.8 million. In 2019 Ballard also delivered continued progress in the execution of our strategy: we launched our next-generation LCS fuel cell stack and FCmove^TM power module, offering lower cost and enhanced performance; we received purchase orders for fuel cell products from the Weichai-Ballard joint venture in China, with construction of the joint venture facility moving toward commissioning by mid-year 2020; we announced our membership in the H2Bus Consortium in Europe as well as the creation of a Marine Center of Excellence at our Denmark facility.”

MacEwen continued, “In 2019 the hydrogen and fuel cell industry experienced remarkable momentum. A total of 18 countries, representing 70% of global GDP, announced hydrogen and fuel cell roadmaps. Major mobility players, including Weichai, Bosch, Cummins, Faurecia, Michelin, CNH, Hyundai and others, committed to significant investments in fuel cells. There is growing consensus in the financial community regarding a reallocation of capital as a direct result of global climate change. And, deployments of fuel cell electric buses and trucks also increased significantly in 2019, led by China.”

The 2020 Q1 results show momentum has continued into the new year with record revenues of $24m, an increase of 50% on 2019 and cash reserves of $181m however the company obviously warn of near-term uncertainties in relation to Covid-19. On the positive side they expect an increase in demands for improvement in air quality and also anticipate opportunities from the green stimulus provided by the EU Green Deal which is due to be formally announced later this week.

YTD  (Canadian Dollar CAD)

The shares were added to my green portfolio in March around the time of the Covid sell-off for $9.75 (13 CAD). They dropped as low as $7.50 by the end of that month but have since recovered strongly to reach a high point of $17.30 (23.40 CAD) last week.

I am hoping the company will continue to benefit from the global transition to zero carbon emissions but at the same time, Ballard has not yet delivered a profit for shareholders despite increasing revenues year on year. As with many of the companies involved in hydrogen technology, there is lots of promise but also the risk that it may not translate to a profitable end result. This is why I have a scattergun approach - placing several bets in various 'pots' and hoping that some will prove to become successful over the long run.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies in a niche sector can be rewarding but is higher risk - always DYOR!

Powercell - Portfolio Addition

This is another company added to my portfolio last week operating in the fast-growing clean hydrogen fuel-cell market and with HQ in Sweden. It was formed in 2008 and is a spin-off from Volvo Motors who were researching fuel cell technology in the 1990s. It has a current market cap. of 15bn SEK (equivalent to £1.4bn).

What They Do

Powercell develops and supplies fuel cells, systems and support services that reduce the environmental impact of energy generation. Their mission is to create a fossil-free society.

For over a decade the company has developed and refined fuel cell technology which provides clean power for transport and other stationary applications. Their systems can be used in many forms of road transport including shipping.

Many readers will have heard of Wuhan, China as it was the location of the first coronavirus cases back in January however what few if any will know is that it is also home to the Wuhan Tiger Fuel Cell Company which has been a customer of Powercell since 2017.

 

Wuhan Tiger Hydrogen Bus

The company is developing fuel cell-powered vehicles for the Chinese market and using a system based on the Powercell S2 stacks. A bus equiped with this system recently clocked up over 40,000 km - equivalent to one lap around the world. Despite daily intensive use in tough conditions, the stacks have proved very robust and reliable and given no problems. These buses with the hydrogen fuel cell stacks are demonstrating a very practical alternative to fossil fuels. The fuel cell bus was given the green light for production in 2018 by the authorites and Wuhan Tiger have now purchased 54 buses but the potential is absolutely huge.

The company have since established a subsiduary - Powercell Fuel Cell (Shanghai) Ltd headed by Yibo Zhao who has been with Powercell since 2017. China has now introduced big subsidies to encourage fuel cell powered transport to address pollution levels in major cities and climate concerns. Obviously there are big opportunities presented by China with a population of 1.4 billion.

In 2019, the company signed a deal with Bosch in relation to their S3 Powercell fuel stack and last week they received an order from Bosch worth €2.5m for delivery throughout the rest of this year.

In April they signed an agreement worth €6.9m with a leading European shipyard for the supply of a megawatt marine fuel cell system. Heavy diesel used in most large ships is very carbon intensive and the International Maritime Organisation are looking ways to decarbonise global shipping by 2030.

past 12 months

As a result of this progress and the various contract announcements, the share price has taken off in the past few months. Sales have grown rapidly from just 12.2m SEK in 2016 to 66.9m last year and are forecast to exceed 100m this year with 26.7m already in the bag for Q1. Of course, there will be the uncertainty of Covid to take into account and Q2 results should give a clearer picture.
 
I am hoping there will be much more to come - especially as the EU have decided to give green hydrogen a central role in their plans for post-Covid recovery and the transition to net zero emissions by 2050. Having said that, the shares have had a good run and are currently close to their all-time high point so there could be some profit taking and volatility in relation to Covid-19.

The shares were added to my green portfolio last week at the price of 297 SEK with proceeds from the sale of my holding in Proton Power.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation... investing in smaller companies in a niche sector can be rewarding but is higher risk - always DYOR!