Electric cars take over. It allows investors. The growth in sales of electric cars is great, but investors still need to be able to separate the wheat from the chaff. Analysis provider Fundstrat believes that investors should look up and down the value chain – from material suppliers to car manufacturers – in order to best take advantage of the EV trend.
Sales of battery-electric vehicles in the United States grew nearly 50% in 2021, while sales in China grew around 170%. Chinese EV penetration of new car sales was nearly 15% for the whole of 2021. US penetration of all-electric and hybrid electric vehicles was lower, around 5%, but forecasts expect electricity penetration in the US to reach 40% to 50% at the end of the decade. President Biden’s goal requires 50% penetration of new car sales.
The figures mean that sales of electric cars in the United States should grow about 12 times over the next eight years, or 33% per year on average. Such growth will lead to large equity gains.
For which stock, however, the question is. Profit “the margins are pretty thin on cars, and consumers are very variable in their consumption patterns and brand loyalty,” Fundstrat wrote in a research report last week. Choosing a handful of electric car manufacturers may not be the best strategy. “We will not only look at direct exposure to electric car manufacturers, but also other innovative ways to gain exposure.”
The research house has five choices, one from five areas of the EV value chain: materials, suppliers, semiconductors, autonomous driving and car manufacturers.
Autonomous driving may not seem like part of the EV theme, but as cars get electric, they get smarter with more software and more semiconductors that control everything from charging times to power output. Self-driving functions and electric vehicles will evolve together over the coming years.
Electric cars, of course, use a lot of batteries, which use a lot of lithium. The choice of material for Fundstrat is
(ticker: ALB), one of the world’s largest miners of lithium. “This is literally a ‘pick and shovel’ game for the EV revolution,” Fundstrat wrote. “We also like the capital discipline and experienced management team that the company has. They have other divisions besides lithium mining, which are also profitable. ”
(APTV) is Fundstrat’s supplier choice. The company makes both electrical components and self-propelled products. “It will benefit no matter which of the major OEMs end up becoming dominant in EV,” adds Fundstrat.
The semiconductor company of the research firm that plays the EV trend is the giant
Taiwan Semiconductor Manufacturing
(TSM), where Fundstrat calls the company the “undisputed leader in the production of the leading chips required for autonomous driving to be successful.”
Fundstrat’s self-driving game may surprise investors. It is
(TSLA). Tesla is, of course, the largest global manufacturer of all-electric vehicles. But the company has also invested heavily in self-driving technology. “The company’s innovation-first culture has resulted in making great strides in the technological race, which will be difficult for peers to catch up with,” writes Fundstrat. “They have done a lot of the basics of autonomous driving and we think they will continue to be a leading company.”
This leaves Fundstrat’s choice of automatic production:
(GM). “GM is entering the EV world in a big way,” writes Fundstrat. The company will spend $ 35 billion between 2021 and 2025 to bring dozens of new electric cars to market by then. “We believe this is a revitalized company with a viable strategy for growing electric cars.”
It’s an eclectic group. GM shares are trading at 7 times the estimated earnings in 2022. The Tesla share is trading at 83 times. Over the past year, the group has averaged around 5% returns. That
Dow Jones Industrial Average
has increased by 19% and 16% over the same range, respectively. For the five shares, only Albemarle and Tesla shares have been up in the last 12 months.
For Fundstrat, it just means that the best is yet to come.
Write to Al Root at firstname.lastname@example.org