Looming Battery Bubble Triggers Tesla Short at This Hedge Fund

(Bloomberg) -- The world will see an “enormous” growth in batteries, but investing in the companies that produce them won't be a winner, according to the man in charge of renewable equities at Norway's biggest bank.

“I fear that the production will be a bit too big,” Jon Sigurdsen, a portfolio manager at DNB ASA, said in an interview in Oslo on Friday. “Because there are too many that will think that it's strategically interesting.”

Cheaper and more powerful batteries are about to change the transportation sector and power production. The energy storage market may grow sixfold from 2016 and 2030, according to Bloomberg New Energy Finance.

Sigurdsen and his partner Christian Rom, who manage about $900 million, combine growth and value investing, so-called GARP - growth at a reasonable price. Their fund DNB Miljoinvest had an average annual return of 16.5% in the past five years. It doesn't hold companies producing batteries, such as Panasonic Corporation, Contemporary Amperex Technology Co., Ltd or LG Chem Ltd.

“There's some capital that's too strategic,” he said. “Countries that just decide that they are going to enter an industry, for example battery cell production. Countries that manage politically and build up big capacity, especially in Asia but also in the U.S.”

The fund has never invested in Tesla Inc., which is “very expensive” and has “very bad” corporate governance, according to Sigurdsen. He is short Tesla in his ECO Absolute Return fund, he said.

“If we had this conversation in one, two or three years I would probably give you exactly the same answer,” Sigurdsen said. “It's very far from qualifying for our portfolio. It's an uncertain business model. They haven't proven at all that they can produce cash flow.”

The fund's biggest holdings are auto-part makers Magna International Inc. and American Axle & Manufacturing Holdings, Inc. Sigurdsen also prefers suppliers to the battery industry, such as AMG Advanced Metallurgical Group NV and Lynas Corporation Ltd.

“Fuel efficiency and electrification of vehicles is a good theme right now,” he said. “There's unique visibility in the car market. We know how the cars must be. That will drive electrification.”

To contact the reporter on this story: Jonas Cho Walsgard in Oslo at jchowalsgard@bloomberg.net.

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Stephen Treloar

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