The Electrification Revolution: Transforming Entire Sectors
The trend of electrification is reshaping entire sectors, with companies and governments alike prioritizing the shift towards using electricity for various reasons. This transformation is driven by the need for geopolitical security, achieving net zero targets, and the efficiency of electrified technologies.
In a post Russia/Ukraine world, decoupling from imported fossil fuels in favor of domestically produced electrons is seen as a way to ensure a more secure and prosperous future. Moving away from fossil fuels also helps in reaching net zero targets, which are crucial for combating climate change. Additionally, electrified technologies are known to be more efficient in terms of power conversion, making them a more sustainable choice for the long term.
The investment opportunities arising from electrification can be categorized into four main groups: electrified products, generation, transmission, and storage. Consumer-facing products like electric vehicles (EVs) have seen significant growth in recent years, with global sales increasing from 4% in 2020 to 18% in 2023. However, instead of investing in EV manufacturers, companies like Littelfuse, a producer of circuit protectors and automotive sensors, are favored for their high value-add components that benefit from the sector’s growth potential.
The electrification of commercial and industrial processes is less visible but has a significant impact. Companies like Spirax Sarco, a specialist in industrial steam and heating, are adapting to use electricity for temperature control, helping other industries reduce emissions. As more products and services become electrified, the share of electricity in final energy consumption is expected to rise, creating opportunities for companies generating electricity sustainably and profitably.
Investment in electrical grids is also crucial as aging infrastructure needs to be modernized to support the increasing demand for electricity. Companies like Prysmian, a manufacturer of cables, are well-positioned to benefit from the growing investment in grid modernization. Additionally, battery technology is advancing rapidly, enabling the storage of electricity and supporting the electrification of transport. Manufacturers like CATL, a Chinese battery producer, are leading the way in developing energy-dense and powerful batteries for various applications.
Overall, the trend of electrification is transforming entire sectors and creating investment opportunities for companies that are at the forefront of this shift. As the world moves towards a cleaner and more efficient energy future, companies that embrace electrification are likely to see long-term growth and success.
