AB Dynamics, Self-Driving Cars and Global Warming

AB Dynamics (ABDP) published some very positive interim results this morning. Revenue up 60%, pre-tax profit up 95% and it looks like it should easily meet analysts forecasts for the full year. The share price is up 9% so far today, at the time of writing. I hold the stock.

The company specialises in testing systems for major car manufacturers including a range of driving robots, soft vehicle and pedestrian targets and driving simulators. This is just what is needed to test the new Advanced Driver Assistance Systems (ADAS) and autonomous vehicles (“self-driving” vehicles) that all car manufacturers are now investing a large amount of money in developing.

For example Elon Musk of Tesla recently predicted that his cars will have self -driving capability by mid-2020 – they just need the software upgrading to achieve that he claims. He also promised a fleet of “robo-taxis” by the same date. These claims were greeted by a lot of skepticism and quite rightly. This is what ABDP had to say on the subject in today’s announcement: “There will be many phases to the development of fully autonomous vehicles and we foresee extended periods of time before they can satisfy a significant part of society’s mobility requirements.  There remain significant barriers to adoption including technical, ethical, legal, financial and infrastructure and these challenges will result in the incremental implementation of ADAS systems over many years to come. The ongoing regulatory environment and consumer demand for safety are also driving technological advancements in global mobility requirements and this provides a highly supportive market backdrop to the Group’s activities”.

As an active member of the Alliance of British Drivers, I can tell you that they are very wary of self-driving vehicles. None of the vehicles under test offer anything like the reliability needed for fully-automated operation and expecting human operators to take over occasionally (e.g. in emergencies where the vehicle software cannot cope), is totally unrealistic. In other words, even “level 3” operation for self-driving vehicles which requires drivers to take over when needed is fraught with difficulties and offers little advantage to the user because they have to remain awake and alert at all times, something not likely to happen in reality.

But even if that future is unrealistic, ABDP should still find a big market for testing of Autonomous Emergency Braking (“AEB”) and other ADAS systems.

Extinction Rebellion and their supporters who have been blocking London’s roads lately seem to want to remove all vehicles from our roads in the cause of reducing CO2 emissions which they claim is the cause of global warming (or “climate change”). I won’t even attempt to cover the latter claims although it’s worth stating that some dispute the connection and that climate change is driven by natural phenomena and cycles. But three things are certain:

  1. Reducing carbon emissions in the UK alone will have negligible impact on world CO2 emissions. China, the USA and other developing countries dominate the sources of such emissions and China’s are still growing strongly due to their heavy reliance on coal-fired power stations for electricity generation. China now produces more CO2 emissions than the USA and EU combined and is still building new coal-fired power stations. The UK now runs much of the time with no use of coal at all and rising energy contribution from wind-power and solar although gas still provides a major source.
  2. Environmental policies in the UK and Europe have actually caused many high energy consumption industries to move to China and other countries, thus enabling the UK to pretend we are whiter than white but not solving the world problem.
  3. A typical example of this approach is the promotion of electric vehicles. A recent article in the Brussels Times suggested that in Germany electric vehicles generate more CO2 over their lifespan than diesel vehicles. The reason is primarily the energy consumed in battery production – for example a Tesla Model 3 battery might require up to 15 tonnes of CO2 to manufacture. Electric car batteries are often manufactured in locations such as China although Tesla produces them in the USA.

In summary the UK and other western countries are being hypocrites and environmental campaigners are demonstrating in the wrong places and for the wrong reasons. The real problem is too many people in this world wanting to move to a high energy consumption lifestyle as we have long enjoyed in the western world. Population control is the only sure way to limit air pollution or CO2 emissions but nobody is willing to face up to that reality. In the meantime we get a lot of virtue signaling from politicians but a failure to tell the public the facts of energy consumption and production. Energy consumption is still growing world-wide and will continue to do so due to demographic changes and the desire for western lifestyles.

Finally just one comment on the Extinction Rebellion demand for a “people’s assembly” or “citizen’s assembly” as it is sometimes called. Is not the parliamentary democracy that we have at present such a system? Or is it simply a case that they want unelected people to decide on future policies? It has been suggested that such an assembly would be chosen at random from the population which hardly seems a very practical idea to me. This demand is a classic example of how muddled the thinking actually is of Extinction Rebellion supporters.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Frying in Hell and Investing in Oil Companies

Last night and this morning, the national media were dominated by the news from the Intergovernmental Panel on Climate Change that we are all going to fry in a rapidly rising world temperature unless we change our ways. CO2 emissions continue to rise and even to limit temperature rises to 1.5 degrees Celsius requires unprecedented changes to many aspects of our lives.

The suggested solutions are changes to transport to cut emissions, e.g. electric cars, eating less meat, growing more trees, ceasing the use of gas for heating and other major revolutions in the way we live.

So one question for investors is should we divest ourselves of holdings in fossil fuel companies? Not many UK investors hold shares in coal mines – the best time to invest in coal was in the 18th and 19th century. That industry is undoubtedly in decline in many countries although some like China have seen increased coal production where it is still financially competitive. See https://ourworldindata.org/fossil-fuels for some data on trends.

But I thought I would take a look at a couple of the world’s largest oil companies – BP and Shell. How have they been doing of late? Looking at the last 5 years financial figures and taking an average of the Return on Assets reported by Stockopedia, the figures are 2.86% per annum for Shell and 0.06% per annum for BP – the latter being hit by the Gulf oil spill disaster of course. They bounce up and down over the years based on the price of oil, but are these figures ones that would encourage you to purchase shares in these businesses? The answer is surely no.

The figures are the result of oil exploration and production becoming more difficult, and in the case of BP, having to take more risks to exploit difficult to access reserves. It does not seem to me that those trends are likely to change.

Even if politicians ignore the call to cut CO2 emissions, which I suspect they will ultimately not do, for investors there are surely better propositions to look at. Even electric cars look more attractive as investments although buying shares in Tesla might be a tricky one, even if buying their cars might be justified. Personally, I prefer to invest in companies that generate a return on capital of more than 15% per annum, so I won’t be investing in oil companies anytime soon.

But one aspect that totally baffles me about the global warming scare is why the scientists and politicians ignore the underlying issue. Namely that there are too many people emitting too much air pollution. The level of CO2 and other atmospheric emissions are directly related to the number of people in this world. More people generate more demand for travel, consume more food, require more heating and lighting and require more infrastructure to house them (construction generates a lot of emissions alone). But there are no calls to cut population or even reduce its growth. Why does everyone shy away from this simple solution to the problem?

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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