It might sound strange, but government subsidies can be a powerful intangible asset – if you know how to spot the most important ones.
Receiving any kind of grant is always a useful investment, especially when it comes with no strings attached (NB… there are always strings attached). But the best kinds of subsidies are more systemic.
Subsidies work by using someone else’s money to cover a specific expense so that a company can funnel its own resources in a more strategic direction. By providing 50% of the cost of, say, an electric car, a business can put more of its precious budget towards marketing or hiring new staff. Subsidies aren’t to be relied upon, of course, but they can be a lifesaver during a tough time.
Right now, the biggest subsidy in the world is occurring in the sector of alternative energy. You probably haven’t heard about it. So, let’s use the lens of intangible assets to reveal this incredible hidden value.
For the past 20-30 years, every major government has been singing the same tune warning about climate change. As scientists beaver away to figure out the details, governments are spending billions on what can only be called propaganda (or “public relations,” if you prefer) to encourage citizens and industry to change their energy use.
Governments want to remove more carbon from the atmosphere to lower the temperature of the globe and better protect human civilisation against runaway warming. To achieve this, fossil fuels are being heavily discouraged through sustained media campaigns.
According to the International Monetary Fund (IMF), governments are still subsidising fossil fuel use to the value of about $US7 trillion in 2023. At the same time, however, they are offering a different kind of subsidy to create a more friendly business climate for alternative energy, such as hydrogen, wind, solar or tidal technologies.
Fossil fuel companies may be getting direct subsidies, but alternative energy firms are benefitting from a global marketing campaign worth hundreds of billions annually.
Government support for alternative energy is on every other billboard, in every other movie, pushed hard in all major newspapers and delivered to every student beginning in preschool classrooms all the way to university.
This fully funded marketing red carpet is an enormous intangible asset for alternative energy companies.
Governments have effectively said, “We’ll shoulder the full cost of educating the public and warm the market for any alternative energy provider that wants to join the party.” Since marketing is a huge cost sink, and governments are subsidising a large chunk of it, what’s not to like?
To put this boost in perspective, without this giant public relations campaign, it would likely cost alternative energy companies magnitudes more to change the minds of consumers because they would be directly competing against fossil fuel producers that have far deeper pockets.
For the foreseeable future, any company that invests in alternative energy will be able to leverage this intangible asset. They can put those saved marketing funds to more strategic uses such as building more infrastructure, buying higher-quality materials, hiring better engineers, or purchasing larger blocks of land.
Indirect subsidies like this are deeply valuable if you can find them. Another good example of indirect subsidies occurred back in August when India sent a remotely piloted spacecraft to the moon.
In the days following the launch, some commentators crowed about how little India had spent on the mission. They pointed out that the mission only cost India $US75 million compared to the Apollo missions which cost a whopping $US25.4 billion in total.
But this is a misleading way to look at the situation. The truth is that India is a latecomer to space flight. And because of its delay, India had the benefit of hindsight of avoiding all the mistakes made by NASA and the Soviet space programmes decades ago.
To calculate the true cost of India’s space programme, the figure must include all the funds spent on developing rocketry and space flight by every country since the 1930s.
In other words, India’s space flight did not cost $US75 million, it’s just that India only had to spend the last few million dollars on a pile that probably sums to north of $US2 trillion – at least.
The same benefits are occurring now in the alternative energy sector. If an investor calculates all the money spent by governments creating a market desire for cleaner energy, they should consider this to be a massive discount for their investments in the best businesses in that sector.
The history of business is full of visionaries seeing value where no one else could. But it’s also full of businesses that stumbled into success by getting lucky. While everyone wants to win the lottery, it’s much better to have a formula for wealth creation. That’s why savvy investors seek unique dynamics that lift the odds in their favour.
Learning to see the hidden value in unique dynamics sometimes requires reframing simple things like subsidies. Intangible assets are more than just assets, they are an entire mindset shift.
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