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Transition risk and opportunity for automakers

Leon Saunders Calvert
Leon Saunders Calvert
Head of Research & Portfolio Management

A new Refinitiv report takes a critical look at the carbon-intensive automobile industry and how automakers are positioned to manage risk and opportunity.

  1. As we move further into the 2020s, automakers must balance customer demand along with emission reduction processes.
  2. Refinitiv and Constellation Research investigate a metric that measures the current and forecasted ratio between climate transition opportunity and risk.
  3. We outline how quickly 27 major automakers are adapting and how aggressively they plan to ramp up their transformation plans.

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We partnered with Constellation Research to produce a report which unpacks trends in vehicle sales between 2010 and 2019, and analyzes the impact of these changes on decarbonization strategies within the sector, before moving on to look at the climate impact management performance of the major automakers over the decade.

Against this backdrop, automakers are facing a range of transition risks and opportunities as a new decade unfolds.

Read the report: Sustainability trends and the automotive industry: Truckification and Electrification. Transition risk and opportunity for automakers

Read the report: Sustainability trends and the automotive industry: Truckification and Electrification

Balancing customer demand with climate concerns

As the new decade unfolds, automakers must balance the need to deliver products that meet customer demand with global requirements to reduce climate impact.

Our report highlights that “the current decade will result in historic business upheaval and opportunity, as some companies successfully respond to the new [sustainable] pressures while others do not.” The report points to a sustainability premium, described as a durable advantage in competitive position and value creation.

Over this period, we expect forward-thinking companies to gain market share and enjoy a competitive advantage as a result of delivering zero carbon or low carbon products.

Early adopters have already begun to reshape demand in the automobile sector, with a case in point being the Tesla Model 3, now the best-selling passenger car in California. Tesla is the global leader in electrification.

The sustainable value ratio

Our research goes on to highlight a new sustainable value ratio, a metric that measures the current and forecasted ratio between transition opportunity and risk.

Sustainability premium zone. When transition risks and opportunities are maximized. Transition risk and opportunity for automakers

This metric delivers insights into both the upside and downside exposure of each company as they embark on the 2020 to 2030 business transition. In other words, the ratio gives a snapshot of how automakers are positioned to manage both the risks and opportunities of transition over the next decade.

The calculation adds a geographic market risk overlay, where geo-risk is calculated based on the percentage of a company’s total sales within each region, multiplied by a regional risk factor.

The end result is a picture of future transition opportunity and risk exposure, and our research outlines four distinct groups:

  • The leaders: These companies (e.g. Tesla) are described as committed to transformation and their opportunities outweigh their risks.
  • The contenders: The contenders (e.g. BMW) have made transition plans, but without the all-in strategy of the leaders.
  • The defenders: The defenders (e.g. Peugeot) have made some plans, but in many cases are less aggressive and have gaps to close.
  • The laggards: These companies (e.g. Suzuki) have typically made no plans and have a significant risk factor.

Given this range of prospects, we expect to see more partnerships and joint ventures, especially as those bringing up the rear now face a time-critical challenge.

From a shareholder point of view, the sustainability value ratio is of significant interest.

A comparison of historical total shareholder return between 2015 and 2019 with sustainable value ratio rankings revealed that the leaders outperform their peers with an average of 12.7 percent, followed by contenders and defenders at 4.5 percent, and the laggards at just 0.3 percent.

Our research further presents a visualization of data, which shows where each automaker is right now, how fast they are adapting, and how aggressively they plan to ramp up their transformation plans.

Collaboration for real progress

A further important point to note in the ongoing move towards a decarbonizing economy is that the electrification of vehicles is not enough.

The means by which the energy to charge electric vehicles is produced is also of the utmost importance. By way of example, an electric vehicle charged in Poland creates 3.5 times the emissions of the same car charged in Sweden.

Today petrol and diesel cars emit almost 3 times as much CO2 than the average EU electric car. Transition risk and opportunity for automakers

Essentially this highlights that for further and more meaningful progress in the climate change arena to be made, collaboration amongst all stakeholders — including consumers, the automobile industry, and other sectors, regulators, governments and more — is crucial.

The value of data and insights

Any meaningful analysis of initiatives and progress within the sector, or of future risks and opportunities, in turn relies on access to reliable, granular data, including but not limited to environmental, social and governance (ESG) data.

While Refinitiv offers the most comprehensive ESG dataset in the industry, we are also cognizant that accurately understanding variables such as intent, ability, and effectiveness requires more than ESG data alone.

To produce this report, we partnered with Constellation Research, who developed an innovative method of generating advanced analytics that leverage forward-looking operational and sales data alongside our Refinitiv ESG data.

These analytics focus on climate policy, transparency and reporting, and deliver critical insights that can inform investors, asset managers, and other stakeholders about progress and prospects within the automobile industry.

Read the report: Sustainability trends and the automotive industry: Truckification and Electrification

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