Are we there yet?

Broadly speaking, incumbent automakers have continued to focus on internal combustion engines (ICE) – those that burn petrol or diesel. But when it comes to battery electric vehicles (BEVs) and plug-in hybrids (all of which fall under the generic EV classification), the incumbents each adopted different views and strategies.

This range of approaches is in stark contrast to new entrants like Tesla and BYD, which have centred their offering on EVs.⁴ China in particular has seen the emergence of dozens of new EV companies, which have been innovating at breakneck speed. A key driver is battery technology, where China is also leading the way.

“Ten years ago, the Koreans and the Japanese were the dominant players in lithium-ion technology,” says Will Malcom. “Fast-forward a decade, and now the Chinese are without doubt the leaders in this technology in terms of cost, and they are pushing with respect to the best energy density and recharge capabilities.”

He says Chinese companies CATL and BYD are also engaged in an arms race to solve the two key barriers to BEV adoption: range anxiety (how far a car can go before needing to recharge) and speed of charging. Both companies announced batteries with a range of over 1,000km in 2026. In March this year, BYD announced its FLASH charging stations could recharge a battery from ten to 97 per cent in just nine minutes and in April, CATL said its Shenxing 3 could charge an engine from ten to 98 percent in just 6.5 minutes – as fast as filling up a petrol engine.^5,6

The race to win

“There is a huge shift given how fast the Chinese have learnt,” says Jonathan Toub. “Originally, international automakers had to have joint ventures with Chinese partners to be allowed to sell in China, and the Chinese learnt from them. Now, the local partners are innovating faster than the legacy firms.”

As a result, explains Martin McCudden, premium brands like BMW and Mercedes have seen their profit pool in China collapse. “It was the golden goose for them over the years, but volumes and profitability are under severe pressure from the rise of the domestic automakers,” he says.

And while Japanese and Korean players are still competing in terms of the technology, Europeans are struggling to catch up. Meanwhile, US automakers, protected by trade policy, have been prolonging the life of their ICE engines and falling behind on EVs (see Figure 1). But, citing the example of Ford, which is trying to sign an agreement with CATL in the face of political opposition, Malcolm says even US automakers are now looking to set up partnerships with Chinese firms on battery technology.⁷

An added difficulty is the industry’s overcapacity in both China and Europe. 

“Chinese companies have built more capacity than consumers could ever have absorbed domestically,” says Toub. “They’re continuing to add to it because a lot of the legacy capacity is in ICE, and it’s easier and cheaper to build new capacity in EV. They can deal with that because they have an export plan.”

Chinese market share of EVs in Europe rose to 14.2 per cent in the first five months of 2026, despite import duties of ten per cent and added tariffs of up to 35 per cent, as electric cars, including battery electric, hybrid electric and plug-in hybrids continue to gain in popularity.^8,9

The geopolitical conundrum

“This is leading to speculation about tariffs increasing, particularly in the EU,” says McCudden. “Car plants in some countries like France and Italy are operating as low as 20 per cent capacity, which is a real issue. I think protectionism is going to have to come in if countries like these want to maintain an auto industry.”

But because of this uncertainty around tariffs and trade, taking a view on protectionism, regulation and geopolitics is becoming essential, which is making it more difficult for investors to assess companies in this space.

“These are becoming strategically important industries,” says Will Malcolm. “If your transportation system is embedded in one technology and you’re totally dependent on a potential adversary down the line, that’s an issue.”

In that respect, US protectionism is currently an asset for Korean manufacturers.

“We have had a position in Hyundai Motor for a while,” says Toub. “It benefits from the fact that its largest profit pool sits in the US, which is a closed market for China.”

Meanwhile, Chinese players have been making strides in less protected areas, be it more open markets like the UK or, in the EU, products like plug-in hybrid cars, which don’t face the same tariffs as battery electric vehicles. But they are also building capacity locally so that, should tariffs and protectionism increase, they won’t be as impacted.¹⁰

“They want to be leaders, and they see an opportunity in the fact that the US is slow and the Europeans have been fairly slow,” adds Toub. “And they see that opportunity around automated driving as well.”

Automakers are taking different approaches to advanced driver assistance systems (ADAS), from robo-taxi companies investing heavily to achieve full autonomy to more cautious firms aiming to gradually take the driver out of the vehicle (see Figure 2).

Figure 2: The six levels of driving automation

Source: Aviva Investors, Rambus, 9 June 2022.

There is a lot of hype around ADAS, raising a few questions for investors, from whether consumers really want self-driving cars, to the level of return automakers might get from their investments in the technology.

“From a fixed income perspective, it’s more about protecting the downside,” says McCudden. “When you look at the capex companies like SpaceX require, often their free-cash profile doesn’t add up to a good credit story, so our focus is on the risk to the incumbents.”

Equity investors are better placed to position for the upside from disruptors, but there are risks around the hype cycle. These are captured succinctly in Amara’s law (first formulated in the 1970s by futurist Roy Amara), which states that people tend to overestimate the impact of a technology in the short run, but to underestimate it in the long run.

“The learning curve of autonomous vehicles is taking longer than bullish people might have thought, and huge amounts of regulation still needs to be put in place to determine how it will work,” says Toub. “But experience is ramping up in terms of the number of hours on the road.”

Competition is heating up between US and Chinese players, like Waymo (in which Alphabet has a big stake) and Pony AI, all of which are vying for the right to test their technology city by city. 

“Uber should be a long-term beneficiary and is hedging its bets by backing virtually every autonomous driving provider out there,” say Toub.

Robotics, impacting valuations today – and tomorrow

But over the last nine months, one theme that has taken centre stage is the progress in humanoid robots. It is shaping investors’ views and valuations of autonomous driving hardware suppliers, whose technology is the same that goes into robots, from LIDAR to sensors. As a result, our multi-asset team is looking into potential investments in robotics, straddling both ADAS and robots.

In the US, Tesla is leading the charge, and several auto companies in China and Korea are also pushing that narrative and changing investors’ perceptions, pushing up their valuations.

“Hyundai Motor Group is a perfect example,” says Toub. “In June 2021, the group purchased an 80 per cent stake in Boston Dynamics, a company that is only just starting to find commercial applications, for $880 million. But with all the humanoid hype, in early 2026, the implied valuation of Boston Dynamics temporarily reached $140 billion, driving group subsidiary Hyundai Motor Company’s stock up by almost 150 per cent by early summer – although this has since moderated.”

From a credit perspective, McCudden also believes this may be an opportunity for European auto suppliers, most of which are rated high yield, to open new income streams and move up the rating spectrum. But again, market share will depend on geopolitics and trade policy, and many markets may stay closed to Chinese manufacturers.

“If you think about the implication of having huge numbers of Chinese-built humanoid robots around the world, especially in the US, legislators will not want to let that happen,” says Toub.

Another key consideration for investors is that these developments could rewire real estate more broadly, particularly as it relates to logistics.

“For large-scale distribution centres, distance matters,” says David Hedalen. “If transport becomes increasingly electric and autonomous, traditional factors like driver availability and fuel access will become less important when deciding on a location. On the other hand, journey time, charging access, grid capacity and route economics will remain critical. This could change the way investors price different land plots.”

Rising numbers of EVs are also increasing demand for access to power, already under strain from the boom in data centres (see Figure 3). 

Figure 3: Energy distribution diagram

Source: Vital Energi, accessed 17 September 2026.

“The key trends we see from a private-market perspective are second or third-order effects from the development and rollout of EVs and autonomous driving,” says Hedalen. “These go from established areas of infrastructure like grid connections and energy to nascent sectors and potential change of usage for things like real estate and petrol stations. And of course, there’s overlap.”

Hedalen therefore sees opportunities in the physical network needed to deal with EVs and autonomous vehicles, from charging sites to logistics hubs, as well as in the energy network, comprising grid connections, battery storage, and power generation including renewables.

Other opportunities stem from the digital infrastructure underpinning these technologies. Depending on their commercial maturity, they can range from venture and growth capital in software, cybersecurity and sensors to infrastructure investment in fibre connectivity and edge computing assets.¹¹

“The opportunity set is becoming investable because we’re not simply looking at the vehicle,” adds Hedalen. “But we need to distinguish between what’s commercially proven and broader technological enthusiasm.”

The competition for powered land

A key enabler to build charging sites, especially for larger fleets and logistics centres, is access to land with enough grid capacity and the right permissions for development.

This type of land is also in high demand from data centres and other electron-hungry sectors, so competition is fierce and prices are rising. While grid investments and upgrades, ramping up energy generation and battery storage can provide longer-term solutions, in the short run, access to powered land is a moat around a lot of hard assets.

But for larger sites like logistics hubs or fleets of cars and trucks, “behind the meter” power and storage offer potential solutions. A good example of this would be the Prologis Denker Hub, which has a dedicated microgrid to charge fleets of heavy-duty electric trucks.¹²

Meanwhile, providers like Fastned or Alfen are rolling out charging points in readily connected areas like city streets and office car parks.^13,14

“You need to bring power to urban areas where people can’t necessarily charge at home,” says Toub. “Usage patterns are still evolving, so companies like these might end up being more or less successful, but these questions are still up for debate.”

Will Malcolm adds that battery makers are also continuing to work on rolling out ultra-fast charging infrastructure. “A lot of the battery-makers realised they could help facilitate that by being involved rather than hoping someone else would do it,” he says.

And CATL is diversifying too. It is developing battery swapping networks with partners in China and collaborating with Octopus Energy to build a heavy-goods vehicle battery swapping network across Europe.¹⁵

The question of HGVs

This could offer a solution, as the main barrier for heavy-goods vehicles remains infrastructure. As of June 2026, there were just over six million trucks in the EU, with only 2.4 per cent registered as zero emissions. In September, the CEOs of Europe’s seven leading truck and bus manufacturers warned that Europe’s shift to zero-emission HGVs was being held back by the conditions needed to drive market uptake.¹⁶

“Zero-emissions trucks will require a huge amount of green energy, but the EU still imports around 60 per cent of its energy, most of it in fossil fuels,” says McCudden.

And less than half the energy produced within the EU comes from renewables, making the transition to zero-emissions HGVs a huge challenge.¹⁷

“From an investment viewpoint, focusing on those bottlenecks is where the opportunity lies,” says Hedalen. “But the speed at which this can be deployed is being tempered by physical barriers.”

In stark contrast, Chinese manufacturers, who are leading on vehicle electrification, are very sanguine. Planning is made easier in China, where the government is supportive of electrification: in June 2026, it published a target of 40 per cent of new HGV – 1.6 million trucks – to be electric by 2030.¹⁸

Looking further ahead, some of the less proven technologies, like last-mile delivery drones and humanoid robots, are increasingly investable in the VC space, but it’s important to differentiate between the hype and commercially proven businesses.

“Opportunities are emerging across the risk spectrum, but for long-term, income-oriented private capital, the market will need to mature to the point where revenues become sufficiently predictable,” says Hedalen.

The evolution of battery technology is opening new markets in other areas too, from exciting ventures like electric vertical take-off and landing to aircraft, where electrification is becoming more plausible, and of course, AI and energy storage systems.

“All these things facilitate developments that can end up feeding back positively into the auto markets,” concludes Malcolm.