EVs and other emerging technologies in 2023
2023 is going to be an exciting year for emerging technologies. In the latest edition of Sustainalytics’ 10 for report series, we developed an approach to support investors interested in sustainability issues associated with nascent technologies, including autonomous shipping, air taxis, electric vehicles (EVs), gene therapies, AI in IT Operations (AIOps) and small modular reactors.
Our analysis of these market segments identified several sustainability related opportunities and risks facing companies and investors in these spaces. On the one hand, these technologies can help mitigate risks linked to a range of social and environmental issues, such as gene therapies treating rare diseases and EVs contributing to a low carbon transition. On the other hand, they also raise concerns about impacts on the environment and human health, as new technologies can have unintended consequences.
An overarching finding of the report is that, while regulators are increasingly scrutinising emerging technologies, they are also playing a crucial role in spurring technological advances and growth in key industries.
For example, regulators are seeking to stem EV product defects, particularly those that pose public safety risks. According to a study by Consumer Reports, EVs have had substantially higher problem rates than internal combustion engine (ICE) vehicles in recent years, suggesting that EVs are still less dependable than ICE vehicles. EV owners continue to report problems with navigation systems, exploding battery packs, failing temperature sensors, and faulty display screens, drive systems and in-car electronics.
At the same time, regulators are also encouraging growth in this space. China is negotiating with manufacturers about extending EV subsidies that were originally set to expire in 2022.
In August 2022, President Biden signed the Inflation Reduction Act, which offers significant incentives to EV customers and carmakers.
As of January 2023, more than 25 countries and US states have expressed support for rules that would ban gas cars in the near future.
By 2035, California will require automakers to only produce new cars that are either zero-emission or plug-in hybrid vehicles. In October 2022, the European Parliament similarly approved a ban on sales of new ICE vehicles from 2035.
Investors can look into how EV manufacturers may contribute to a low carbon portfolio strategy while also accounting for the risks posed by the environmental impacts of EV supply chains and EV product defects, which have tended to result in declines in stock price and losses to companies.
The chart below compares a sample of EV makers (battery electric vehicles and plug-in hybrid electric vehicles) with respect to their Product Governance risk scores. Most of the car manufacturers in this sample have a high (6-8) or severe (>8) risk score, except for Lucid Group (4).
Product Governance risk ratings of six EV manufacturers. Source: Sustainalytics
Product Governance is an issue that we identify as relevant for all the spaces and companies assessed in 10 for 2023. To learn about the criteria we use to access companies on this and other material ESG issues, download the report.
Authors:
Martin Vezér, PhD,
ESG Research Associate Director, Thematic Research
Poulomi Sengupta
ESG Research Senior Analyst, Thematic Research
Sustainalytics will present at RIAA’s ESG Trends to Watch in 2023 webinar on Thursday 9 February – RIAA members can register here.