Why the leading climate investor is worried about all of Tesla’s money

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China-made Tesla Model 3 vehicles are seen during a delivery event at its factory in Shanghai, China, Jan.7, 2020.

Song of Aly | Reuters

Climate investing is real and is here to stay, according to Jim Coulter, executive chairman and founding partner of TPG, it’s just knowing which companies and technologies are real that remains one of the most difficult parts of the equation. investors.

Tesla is a prime example of the potential, and the potential danger, at the start of the era of climate investing. In a few months, Volkswagen is expected to become the largest manufacturer of electric vehicles in the world. This week, Ford unveiled a new commitment of $ 11 billion for electric vehicles and batteries.

“We’re about to see some of the great battles in business history unfold,” Coulter told CNBC Delivering Alpha on Wednesday. Coulter, who manages the more than $ 5 billion TPG Rise Climate fund, said the auto market would be one of them.

During difficult financial times in Tesla’s history, CEO Elon Musk stressed that there had not been a successful new US-based auto company in a century. And that’s one of the historic footnotes that got Coulter worried about Tesla as well. Coulter noted that the Detroit-based OEM market in the 1920s had as many as 100 automakers.

“There will be chaos in the market… but there are opportunities in that chaos,” Coulter said, referring not only to the upcoming upheaval in automobiles, but also in the grid and battery market. Investors need to be careful, he says, and not just watch a trend that is here to stay and say “buy some stacks”.

At another roundtable on ESG investing earlier Wednesday at Delivering Alpha, CalSTRS chief investment officer Chris Ailman, who worked with activist investor Engine No. 1 to win board seats Exxon Mobil earlier this year said climate change would be an alpha generator for the next four decades.

Speaking on the same ESG panel, vice president of investment giant Wellington, Wendy Cromwell, said: “We’re stuck in ESG terminology or nomenclature, but if you’re just taking a big step back and think about some of the big megatrends shaping our company’s economies and society going forward, certainly everyone will agree that climate change is a megatrend. And that investors need to study it, and companies need to prepare for it. “

Jim Coulter, Executive Chairman and Founding Partner of TPG, speaking on Impact Investing at CNBC’s Delivering Alpha 2021 event.

CNBC

Like many investors who have experienced multiple bull markets and thematic waves that generated big returns, Coulter echoed concerns about the tech bubble of the 1990s. He believes the weather will be the fourth wave of his career. investor that will change the way every business operates – following the interest rate cycle of the last decades, globalization and the rise of the tech sector – but as in 1998, investors must be skeptical.

Over the past 18 months, the public market has seen a massive increase in flows to ESG investment stories, including “a lot of money” to a limited number of companies like Tesla. It’s not just about individual investor money. Some long-term institutional investors strongly believe in Tesla, such as billionaire fund manager Ron Baron. The most recent stock picker in the market, Cathie Wood of ARK Invest, is also a major holder of Tesla.

“When the money starts pouring into a limited number of businesses, there is hydraulics to it,” Coulter said.

This is the second time this year that Coulter is warning investors that it is still difficult to assess whether Tesla will be the next AOL or Amazon. He told CNBC’s Leslie Picker in July: “It’s clear in public markets that Tesla in some ways is getting attention – it might not end the way AOL ended – but it is. a first understanding of the importance of a sector of climate change universe. Electric vehicles are therefore a part of what needs to happen.… And yet, if you look at the importance given to climate-related businesses, enormous attention is given to this corner of the market. ”

The electric vehicle resolution will create “immense opportunities” for investor capital, Coulter told Delivering Alpha on Wednesday, but he also added to the Tesla comparison: “AOL was one of the first companies you heard from. talk about and Tesla was the first one you heard of here, but that doesn’t mean we’ve seen the Googles and Salesforces of that. “

Coulter predicts a massive shift as the technology industry evolves, with the power grid moving from a model that resembles the original central computing to a distributed grid with intermittent sources like wind power. and solar entering a generation mix that is “massively more complex and green” and more like the current client-server model of technology.

“You can learn a lot from the analogy with what happened in the public market [in the 1990s]Coulter said. The investable climate market, like the tech market, is coming. But investors should “not get carried away by this moment, but by this time,” Coulter added.

According to Coulter, investors may seize several major economic waves to generate alpha as the overall market appears stretched in terms of valuation, including the relocation of industry and biotech. But he is looking for an alpha in decarbonization, which, according to him, may be the greatest industrial revolution in the history of mankind, but which is only “in the early stages of this era”.

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