The electric vehicle market
It is still early days for the electric car market. Around 2.5 million electric vehicles were sold in 2020, accounting for just a fraction of total vehicle sales. But that is expected to surge to over 11 million sales a year by 2025 and over 31 million by 2030, according to forecasts from Deloitte. Electric vehicles will account for almost one-third of all sales by the end of this decade, suggesting the market has legs that stretch well beyond 2030.
China remains by far the largest electric vehicle market in the world, followed by Europe and then the US.
The long-term outlook for the market remains strong. Governments are committed to introducing greener policies and the transition to electric vehicles forms a big part of those plans. We have seen electric vehicle stocks like Tesla surge in value to the point now that the company is deemed to be worth more than the top ten largest producing carmakers in the world combined.
That is purely based on its Tesla’s prospects considering it produced just 500,000 cars last year compared to the top ten largest car producers that churned out over 60 million cars.
While markets clearly believe electric vehicle stocks have a headstart, traditional carmakers are accelerating their plans to shift to cleaner vehicles. Jaguar Land Rover and General Motors are just two of the latest companies to commit to going green by both committing to make all their cars electric by 2035, while some like Ford believe they can do it before the end of this decade. Research from McKinsey suggests there will be around 450 new electric vehicle models released by 2022, compared to the 143 new models released in 2019.
The electric vehicle ecosystem
Those looking to gain exposure to the electric vehicle market are often steered toward the manufacturers like Tesla or other hot stocks like Chinese outfit NIO or truck company Nikola. However, the mass adoption of electric vehicles will require effort from all parts of the ecosystem, much of which gets neglected during discussions about the electric vehicle revolution.
This includes the ‘pick and shovel’ plays like those that provide parts or connectivity services, stocks that provide all the energy needed to power greener transport, and businesses that provide the vital infrastructure needed to keep cars going.
Top Electric vehicle stocks
Let’s have a look at the wider ecosystem and explore which stocks and sectors will benefit from the uptake of electric vehicles.
Electric vehicles and commodity mining stocks
Every part of the ecosystem, from the batteries and chips that power a car to the charging points and infrastructure needed to keep it all going, has to be made from raw materials. This makes commodity miners vital to the shift to a greener world.
For example, batteries need metals like lithium, cobalt, copper and nickel. Multi-commodity miners like Glencore, BHP and Vale have the greatest exposure as they mine two or more of these metals. Some of the largest lithium stocks include Albemarle, SQM, FMC and Lithium Americas. Anglo American and Eramet are two of the biggest producers of nickel, while Freeport McMoran, Southern Copper, Antofagasta, and First Quantum all produce large quantities of copper.
Many smaller miners have popped up over the past decade that have solely targeted the metals needed to fuel the growth in electric vehicles, but larger multi-commodity miners have the diversity needed to offset any weakness in a particular market.
Companies that provide other materials needed to produce cars, electric or not, such as carbon fibre, aluminium, plastics and steel will also be well placed to benefit from any growth in the vehicle market.
Electric vehicle component stocks
Another way to approach the market is to consider the picks-and-shovel plays. These are stocks that provide vital components to the industry, meaning they benefit regardless of who wins the race to dominate the electric car market. In this case, that includes companies that provide parts that are needed by all types of cars.
For example, BorgWarner provides a wide range of components needed to make both combustible and electric vehicles, such as clutches, modules, heaters and chargers. Magna International provides seating systems, body exteriors and other products to a wide range of car manufacturers. LKQ Corp makes specialised replacement parts for all sorts of vehicles. Tenneco makes components that helps improve the ride and other motor parts. Lear specialises in seating, while Advance Auto Parts is a huge supplier to the aftermarket. In Europe, there is the likes of Stellantis to consider.
There will be little change when it comes to tyres so stocks like Continental and Michelin will be vying to retain their leading roles in the market.
There will also be new suppliers catering specifically to the electric car market and, more importantly, the autonomous car market when it takes off. These are companies that provide the chips, sensors and radars that ultimately control the car and keep it connected. While newer cars are becoming increasingly more connected to other devices, most cars on the road run-off a simple engine and lack the connectivity that modern cars have.
This brings chipmakers like NVIDIA, NXP Semiconductors and Maxim Integrated Products into play, as well as stocks like Aptiv that provides software to help with autonomous driving, or European outfit Valeo, which designs smart mobility software to help with ‘intuitive driving’ and reducing emissions.
Electric vehicle stocks
The most direct way to gain exposure to the electric vehicle market is to trade the manufacturers themselves. There are electric car companies like Tesla and NIO and companies that have focused more on making trucks and delivery vehicles like Workhorse and Nikola, all of which have attracted investors since being created solely to build electric vehicles.
However, traditional automakers are gradually entering the market and closing the gap with the likes of Tesla. Companies like Renault, BMW, and Hyundai are already among the largest producers of electric cars.
One problem that traditional automakers have is that they must transition to electric vehicles, relying on sales of combustion-engine cars to fund the development of new greener models, which is a burden not shared by the pure plays. But there will be an inflexion point, possibly within the next decade, when the big boys will be predominantly selling electric vehicles.
One consideration to take into account with trading manufacturers is that is a more competitive market and that there will be more winners and losers, unlike pick and shovel plays that can benefit regardless of who wins the race to dominate the electric vehicle market.
Car dealerships stocks
One interesting area of the market is distribution. Dealerships will also have to manage a transition to electric cars while adequate financing options will be an integral ensuring more people adopt them.
There is a string of publicly-listed dealerships, including Pendragon, Lookers, Vertu Motors, Inchcape, Motorpoint and Auto Trader in the UK, and AutoNation, Group 1 Automotive, CarMax, Sonic Automotive and Lithia Motors elsewhere.
There are also other major changes happening in the market that will force older players to adapt. Firstly, manufacturers have always sold their own cars but they have also used third-party dealerships to try to boost sales, but today more carmakers are trying to sell directly to customers. Plus, there is new competition coming from online and app-based rivals.
Electric vehicles and connectivity and telecoms stocks
We are seeing traditional carmakers band together and with new tech-savvy partners to accelerate their transition to electric vehicles and, over the longer-term, autonomous cars. For example, there have been reports that Apple wants to enter the market despite having no experience in cars. Similarly, Alphabet, Amazon and Tencent are other tech companies that have moved into the automotive space.
This is because, as cars become smarter, the more they will rely on things like connectivity services, telecoms companies, satellites, cloud-computing and data management. That brings big tech companies into play, as well as telecoms stocks like Verizon, AT&T, BT, Telefonica, Comcast, and Liberty Global, which will unleash the faster connectivity needed to make autonomous vehicles a reality.
The take-off of new technology will see more satellites launched into space over the coming years, particularly as private space companies look for sources of revenue. Publicly-traded businesses that provide satellite services include Lockheed Martin, Globalstar, Viasat and Gogo.
Charging station stocks
One of the biggest barriers to widespread adoption of electric vehicles so far has been concerns about battery life and being left stranded due to a lack of infrastructure. While batteries are always getting better, people need the ability to charge their car as easily as they can fill it with petrol today to have the confidence to buy one.
Charging stations are therefore the most vital piece of new infrastructure that is needed. Stocks to consider include Blink Charging, which has built over 23,000 charging stations, and Switchback Energy, which is in the process of merging with Chargepoint, which runs the largest network of electric vehicle charging stations in North America and Europe. We have also seen the likes of Shell move into the area as it starts to transition away from oil and to providing more customer-facing services.
Energy provision and infrastructure stocks
The shift to electric vehicles is driven by the need to make transport more environmentally-friendly, so the energy used to charge and power electric vehicles has to be green for it to work. There would be little benefit if we all adopted electric cars and then charged them using dirty sources of energy like coal.
This is applying huge pressure to build out the capacity needed for countries to run off renewable energy and, while Big Oil and power utilities are gradually shifting, the space is mostly dominated by companies solely dedicated to renewable power. Some of the largest generators of renewable energy include NextEra Energy, Iberdrola, JinkoSolar, Vestas Wind Systems, Siemens Gamesa Renewable Energy, Brookfield Renewable Partners, First Solar, Canadian Solar and SunPower.
Utilities that manage and supply power to businesses and people will also benefit from increased usage of the energy grid as people buy more smart devices, including cars. Instead of going out and buying fuel, everyone will be charging their cars at home and that will have a huge impact on the environment for companies like National Grid.
One of the biggest problems facing renewable energy is intermittency and storage. Unlike gas or coal that can be burnt to generate power when it is needed, renewable energy is largely reliant on the weather. If the wind isn’t blowing or the sun isn’t shining, then there may not be enough power to meet demand. This means energy storage is as vital to the transition as renewable energy itself, allowing it to be stored and used when it is needed to overcome the problems with intermittency.
There a number of companies working on energy storage systems like AES Corp, Bloom Energy and General Electric.
Electric vehicles: How to trade the market
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