Why zero emission vehicles aren’t just about electricity…
29th September 2022 |
In last week’s update, we introduced three new stocks that we think provide an answer to the UK’s energy crisis, and two of those feature again this week.
You were probably already familiar with our excitement towards nuclear power, given the additions of Yellow Cake (LSE: YCA) and Aura Energy (LSE: AURA) in March 2022.
However, there’s another industry that we believe could play an equally important role in the green energy transition, and that’s hydrogen.
Hydrogen is a low-carbon, versatile fuel with several uses. It can be transported in liquid and gas form and used for energy storage, heating homes, and powering machinery.
But what matters for this edition Frontier Tech Investor is its role in decarbonising transport systems.
The European Union (EU) is banning the sale of petrol and diesel-engine vehicles by 2035.
With this in mind, hydrogen-powered vehicles are being explored as a transport option.
In fact, this month, the European Parliament has stated that, by 2030, the share of renewable fuels of “non biological origin” (mainly hydrogen) should make up at least 5.7% of the transport sector.
What’s more, automotive giant BMW recently confirmed that it’s developing fuel systems for its new hydrogen-powered iX 5 model.
This isn’t to say that hydrogen-vehicle uptake will outpace electric-vehicle (EV) adoption. It could nevertheless help economies meet their sustainability targets.
There remains some mystery about how hydrogen-powered vehicles operate.
The vehicles use fuel cells, which are powered by compressed hydrogen gas which feeds into a fuel-cell “stack.” The stack doesn’t burn the gas, but, instead, converts the fuel’s chemical energy into electrical energy. This is then used to power the car’s electric motors.
Hydrogen vehicles don’t need charging like an EV. You re-fuel them with hydrogen gas, at hydrogen fueling stations, pumped in the same way you would petrol and diesel cars.
They’re otherwise referred to as “fuel-cell electric vehicles” or FCEVs.
Two of the main commercially available hydrogen cars are produced by Asian brands. Toyota’s Mirai model and Hyundai’s Nexo model are the best-known examples.
Currently, there are only around 60,000 hydrogen-powered vehicles on public roads globally. However, this figure is expected to reach one million by 2027.
The UK only has around 300 hydrogen vehicles on its roads at present.
However, having committed up to £183 million to deploy hydrogen-powered vehicles, the UK is seeking to boost uptake. This is part of the country’s hydrogen strategy, by which it aims to generate 35% of its energy supply from hydrogen by 2050.
Now it should be said that there’s little in the way of hydrogen infrastructure to support hydrogen vehicles at present, just as, when EVs first started hitting the road, there was little in the way of charging points (arguably there still are few).
But the ability to add hydrogen to existing petrol and diesel station infrastructure is one of the benefits of moving to hydrogen as a fuel source for vehicles. And we expect that there will be a concerted push (both public and private) to ramp up availability of hydrogen refuelling stations over the coming years.
In fact, Shell is already strongly moving in this direction, and you can find hydrogen “at the pump” at three Shell stations in the UK already. That might not seem like many (and it’s not), but of the 14 across the UK currently, Shell accounts for 21%. Also, it recently commenced construction of Europe’s largest hydrogen plant in the Netherlands, and has already said it can “quadruple” its hydrogen position in the market in the next few months.
So, hydrogen energy is just starting to disrupt the transport industry, and the wider energy industry.
This lends a strong investment case for Clean Power Hydrogen (LSE: CPH2) and HydrogenOne Capital Growth (LSE: HGEN).
Clean Power Hydrogen (CPH) has developed a revolutionary hydrogen electrolyser, which provides a cheaper and more efficient way of extracting hydrogen than its competitors.
You can learn more about this process here.
Transport is a key focus area for CPH. Notably, it has an ongoing commercial partnership with Octopus Hydrogen, which supplies clean hydrogen to the transport industry.
HydrogenOne Capital Growth is an investment fund which has holdings in a mixture of private and publicly-listed hydrogen companies.
It provides unique exposure to hydrogen assets that would otherwise be out of reach to ordinary investors, which is one of the reasons we like the company.
Notably, HydrogenOne has invested £12 million in OEM hydrogen fuel-cell supplier Bramble Energy. The latter makes up around 13.3% of HydrogenOne’s total investment in private hydrogen assets.
Coincidentally, Bramble Energy helps to power Toyota’s Mirai model, mentioned above.
We reiterate our ‘BUY’ recommendations for Clean Power Hydrogen and HydrogenOne. You can find the original recommendations for both stocks here.
Buy list update
AB Dynamics (LSE: ABDP)
AB Dynamics is a provider of vehicle testing systems.
The company ensures automotive manufacturers stay abreast of an ever-changing regulatory landscape, as autonomous and electric vehicles begin to hit public roads in huge numbers.
AB Dynamics’ testing services are like no other.
Its driving simulators use state-of-the-art technology to ensure vehicle systems are brought to commercial readiness.
You can see how they work here.
On 23 September, AB Dynamics announced the acquisition of Ansible Motion for £31.2 million. Ansible Motion is a leading provider of advanced simulators to the automotive market.
Notably, it has a commercial agreement with automotive giant Honda.
Ahead of the acquisition, the company was expecting to double its turnover in the 2023 financial year, despite turbulent market conditions.
As a result, the acquisition will greatly improve AB Dynamics’ expertise and will help push the boundaries of its simulator vehicle testing.
In our view, this increases AB Dynamics’ growth potential, and reaffirms it as a global, leading provider of vehicle testing services.
We reiterate our ‘HOLD’ recommendation on the stock. You can find the original recommendation here.
The Frontier Tech Investor “Top Three”
Sometimes it’s hard to decide on which stocks to invest in from our buy list.
Below is our Frontier Tech Investor “Top Three” section showing three stocks in open BUY positions. If you’re trying to figure out what to invest in next, these are three that we think are a great place to start.
This doesn’t mean our other stocks are no good: this is just a tool to help you spot the next Frontier Tech Investor stock that could be worthy of your consideration.
Volex (LSE: VLX) – Volex is a global manufacturer of power and connectivity products. These include power cables, fibre optics and charging plugs. It might sound a little basic, but these are critical mechanisms that are powering some of the key technologies of the modern day. These technologies comprise electric vehicles (EVs), artificial intelligence (AI) and big data networks. Volex has huge credibility behind it, particularly as it does business with some of most widely recognised companies in the world, including Tesla. You can find the original recommendation here.
Aura Energy (LSE: AURA) – Aura Energy is an early-stage mining company focused on the exploration and production of uranium, a key ingredient in the generation of nuclear energy. The company is showing signs of a shift from uranium explorer to producer, after uncovering water deposits at its Tiris mining project in Mauritania. Water deposits are essential for a smooth mining process. Aura estimates that its Tiris project will produce 12.4 million lbs of uranium over the next 15 years. Aura should be a key player in the nuclear future. You can find the original recommendation here.
Pod Point Group (LSE: PODP) – The UK’s inadequate (for now) electric vehicle (EV) charging network is threatening to bring the EV transition to a halt. By 2032, the shortfall of EV charge points in the UK is estimated to reach 250,000. However, Pod Point’s innovative range of EV charging solutions could go a long way in ensuring this deficit is reduced. The company’s charging technology is fit for homes, public charging bays, lamp posts and commercial buildings, and can ensure that the EV transition reaches all areas of the UK. In our view, Pod Point can unlock the potential of the UK’s EV charging network. You can find the original recommendation here.
Sam Volkering
Editor, Frontier Tech Investor
Elliott Playle
Analyst, Frontier Tech Investor
