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GLOBALOUTLOOK COVERSTORY


Shareholders have already been


encouraging company boards to fol- lowthe cycle and deploy cash for capital spending. A periodic survey by BofA Securities of 204 global fund managers in February found that, for the first timesince January 2020, financial investors want chief finan- cial officers (CFOs) to increase capex rather than improve the balance sheetmoving forward. Boards are updating their strate-


gies accordingly. US corporations, which are traditionally the largest source of cross-border investment, have already bumped up capex budg- ets to pre-pandemic levels. Excluding energy companies, they are planning to invest $533.4bn in 2021, up from $486.3bn in 2020 and $507.5bnin 2019, according to data compiled by analysts at Citi Researchand based on the investment intentions unveiled bymore than 730 non-financial pub- licly-traded US companies. Someof the sectors that strug-


gled the most during the pandemic are nowdriving this rebound. “The industries that pulled back


in 2020 nowhave to expand again becausedemandis picking up, or they expect it to pick up, or they’re trying to get more efficiencies in their production,” Tobias Levkovich, chief USequity strategist at Citi Research, tells fDi. “It is fascinating to see that companies feel confident enough to say:‘We are going to catchupon the yearwemissed, plus a bit more’.”


Green disruption drivesnewcapex With the winds of green disruption


20


sweeping across the automotive and energy industries, incumbent indus- try leaders are pivoting their strate- gies to ride the change while gradu- ally divesting fromquickly deterio- rating businesses. Although legacy original equip-


ment manufacturers (OEMs) have been somewhat hesitant to embrace the electric vehicle (EV) revolution, they have finally taken the plunge as sustainable mobility emerges as one of the pillars of post-pandemic economies. Volkswagen,which shares the


crown with Toyota as the world’s big- gest carmaker, announced an ambi- tious e-mobility strategy in March. The group wants EVs to make up 70% of sales in Europe and 50% of sales in the US and China by the end of the decade, and will use 6% of its reve- nue as capital investment between 2021 and 2025 to accommodate the change. Battery development and procurement will also be vital, and Volkswagen plans to launch six bat- tery ‘gigafactories’ by 2030 and thus reduce battery costs by 50%. Overall, it plans to investmore than €50bn and more in battery procurement over the coming years, the company said in a statement. This trend has beenseenacross


the industry, withmostmajor car- makers announcingambitious EV targets in the past fewmonths. Toyota expects EVs to account for 70% of its sales in the US; Ford announced it plans to go all-electric in Europe by 2030; Volvo will go all-electric glob- ally by 2030; Daimler plans net-zero


vehicles by 2039, thus aiming to make thewhole value chain of pro- ducing an EV vehicle carbon neutral. After a dreadful 2020, no other


industry is expected to rebound stronger than the automotive sector this year.UScar andcomponent com- panies have set aside $24.8bn for capi- tal investment in 2021, almost50% higher than in 2020, Citi figures show.


Zero-sumgames With EVs following a different pro- duction method to traditional cars, legacy OEMs have found themselves in a zero-sumgame, where each investment in the EV ecosystem risks becoming effectively a divest- ment from the existing internal combustion engine (ICE) production industry. Manufacturers are nowin a


phase “where OEMs start to pull cap- ital fromICE and older technologies to compensate for higher [EV] spend- ing”, Philippe Houchois, equity ana- lyst at investment bank Jefferies, wrote in a research note in December. “All are currently plan- ning to gradually transition froma world of ICE to a combination of EV powertrain without knowing (under- standably) the speed of adoption or whether ICE is truly doomed. While it is a responsible approach, it main- tains the industry in a zero sum- gamewhich could turn negative if ICE margins fall faster than EV improves, or if the strategy further stretches out the runway offered to emerging challengers.” This paradigmshift is in full dis-


www.fDiIntelligence.com April/May 2021


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