Just as electric motors have disrupted traditional internal combustion engine cars, I think there will come a time when electric jets replace current jets. With improving battery technology, the technology for electric planes is becoming more practical. Given the trend, here’s why I think Rolls-Royce (LSE:RR) and the Rolls-Royce share price could benefit from going electric.
Reducing carbon emissions in the industry
I think the Rolls-Royce share price is intriguing given a particular emerging sector.
As an industry, aviation accounts for more than 2% of greenhouse gas emissions, and that amount could grow as more people fly. Cutting down aircraft emissions would be one of the methods to help achieve ambitious carbon emission targets by the middle of this century.
Given the current state of battery technology, the electric plane industry is still in its very early stages. There is still a lot of technology that needs to be developed in order for electric planes to be lightweight, safe, and durable enough to be used commercially. Many experts reckon it could take decades before electric airplanes that carry hundreds of people can fully replace kerosene ones. With battery tech improving in terms of efficiency and cost, however, electric planes look more and more practical at some point in the future.
Rolls-Royce, in particular, has worked in a collaboration on the world’s fastest electric plane, which is capable of going more than 300 miles per hour. According to past releases, the electric plane is a one-seater that can travel 200 miles on a single charge.
How I think the electric trend could affect the Rolls-Royce share price
Given the success of Tesla, there is a lot of current market buzz over many things electric. Many electric car company stocks, for example, have risen regardless of their fundamentals.
Likewise, electric charging stocks have also done well. More in Rolls-Royce’s arena, an electric aircraft startup, Archer, could go public at a potential billion dollar valuation. If Rolls-Royce’s electric plane efforts get more positive attention, I think the company could be perceived as more green. If the market remains bullish on green stocks, I think Rolls-Royce share price could potentially benefit.
I also reckon Rolls-Royce has an opportunity in terms of growth in electric aircraft engines or even in making electric planes. The electric plane market could be a huge growth market in the future, particularly in terms of electric air mobility or ‘flying taxis’. With more direct routes, flying taxis could save a lot of time in terms of commutes.
If the electric air mobility market grows to what some analysts expect, and Rolls-Royce’s battery and electric engine solutions are competitive enough, I think the company could win a lot of new business. According to Morgan Stanley‘s estimates, the electric air mobility market could amount to $1.5trn by 2040. Although the market might still be a long way off, I think it’s big enough that it makes Rolls-Royce shares worth holding in my portfolio. I think the Rolls-Royce share price could benefit if management does well in the sector.
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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.