Sell EV Makers And Buy Supplier Stocks In 2022?

Our theme of Electric Vehicle Supplier Stocks has fared well rising by about 34% in 2021, outperforming the S&P 500 which was up by about 27% over the same period. The theme also remains up by about 105% from pre-Covid levels (end of February 2020).

The shift to electric vehicles has gained momentum through the Covid-19 pandemic, with pure-play EV players such as Tesla and Nio posting robust growth despite the semiconductor shortage and investors also doubling down on high-growth stocks given the low interest rate environment. The regulatory environment is also looking more conducive with the Biden Administration outlining ambitious EV investments and targets. That being said, we think electric vehicle supplier stocks could offer better risk-adjusted returns versus EV manufacturers in the medium to long run. For example, pure-play EV stocks, such as Tesla, trade at high valuation multiples and could likely see some correction as rates rise. Moreover, auto industry incumbents such as GM and Volkswagen face low barriers to entry into the EV market. On the other hand, top component suppliers should stand to benefit irrespective of which automakers eventually win the market share battle in the EV space. There is massive room to grow, as EVs currently account for less than 2% of vehicles sold in the U.S. in 2020, and it’s reasonable to expect that the passenger vehicle market will largely be electric over the next decade or so.

Within our theme, Albemarle, one of the largest producers of lithium, which is used in EV batteries, has been the strongest performer, with its stock up by about 59% through 2021, driven by higher lithium prices and rising demand. On the other side, BorgWarner, a company that sells electrical products such as inverters, which are key to producing drivetrains for electric vehicles, has been the weakest performer, with its stock up by just about 17% over 2021.

Below you’ll find our previous coverage of the Electric Vehicle Component Supplier theme where you can track our view over time.

[10/28/2021] EV Supplier Stocks To Watch Following Hertz Big EV Order

Our theme of Electric Vehicle Supplier Stocks has done well, rising by about 29% year-to-date, outperforming the S&P 500 which was up by about 22% over the same period. The theme has also roughly doubled from pre-Covid levels (end of February 2020). There are a couple of good reasons for the gains. The shift to electric vehicles is gaining momentum, with major automakers doubling down on their EV investments and governments setting aggressive targets for electrification. Moreover, the EV industry got another big boost earlier this week, as rental car major Hertz said that it ordered 100,000 Model 3 vehicles from Tesla to be delivered by the end of next year. The deal is an indicator of the urgency with which the transportation industry is electrifying. For perspective, Hertz has roughly 400,000 rental vehicles in total, meaning that Tesla’s EVs could account for about 20% of its fleet. Having more rental EVs could also encourage more people to try out EVs and become potential buyers.

While Tesla stock soared by almost 14% following the news, we think the news also bodes well for EV suppliers, who stand to benefit as other mainstream automakers and upstarts build out EVs and expand production. Within our theme, Albemarle, one of the largest producers of lithium which is used in EV batteries, has been the strongest performer, with its stock up by about 58% year-to-date driven by higher lithium prices and a faster than expected pivot to electric vehicles. On the other side, BorgWarner, a company that sells electrical products such as inverters, which are key to making drivetrains for electric vehicles, has been the weakest performer, with its stock up by just about 16% this year to date.

[8/31/2021] Half Of All Cars Sold by 2030 Could Be Electric. Which EV Supplier Stocks Stand To Gain?

Our theme of Electric Vehicle Supplier Stocks has fared well, rising by about 27% year-to-date, outperforming the S&P 500 which was up by about 21% over the same period. The theme was also up by about 77% since the end of 2019, compared to the S&P 500 which was up by roughly 41% over the same period. The transition to EVs is likely to gather pace, with President Joe Biden indicating that he wants half of all new car sales in the U.S. to be electric by the end of this decade. The move is also being backed by the largest U.S. automakers. This shift would give EV suppliers big room for growth, as electric vehicles accounted for just about 2% of all cars sold last year. Now, although competition in the component space is also likely to intensify considerably in the coming years as the EV market expands, companies in our theme should benefit from an early mover advantage.

Within our theme, Albemarle, one of the largest producers of lithium which is used in EV batteries, has been the strongest performer, with its stock up by about 60% year-to-date driven by higher lithium prices and a faster than expected pivot to electric vehicles, amid major commitments by mainstream automakers. On the other side BorgWarner, a company that sells electrical products such as inverters, which are key to making drivetrains for electric vehicles, has been the weakest performer, with its stock up by just about 11% this year to date.

[7/23/2021] EV Supplier Stocks To Watch As Mercedes Plans $47 Billion Electric Drive

Our theme of Electric Vehicle Supplier Stocks has fared well this year, rising by about 18% year-to-date, marginally outperforming the S&P 500. We believe the theme stands to outperform in the years to come, as the transition to EVs gathers pace, leading to the growing demand for components. Last week, the European Union proposed an effective ban on the sale of new gasoline and diesel cars as of 2035, in a move that could accelerate this shift to electric vehicles. Major car brands are also doubling down on their commitments to electrification. For instance, Volkswagen recently indicated that half of its sales were expected to come from battery-electric vehicles by the end of the decade. On Thursday, Daimler AG’s flagship brand Mercedes-Benz outlined plans to invest over Euro 40 billion (around $47 billion) between 2022 and 2030 to drive its transition to electric vehicles. The company says that it intends to build eight factories to meet its battery requirements.

Now, although competition in the component space is also likely to mount as the EV market expands, the companies in our theme should benefit from an early mover advantage. Moreover, the market is also likely to be massive. For perspective, roughly 70 million automobiles are sold worldwide each year, and over the next decade or so, it’s likely that a good chunk of these will be electric.

Within our theme, Albemarle, one of the largest producers of lithium for EV batteries, has been the strongest performer, with its stock up by about 30% year-to-date. On the other side, Amphenol, a company that makes electrical, electronic, and fiber-optic connectors, has underperformed, with its stock up by about 7% year to date.

[7/12/2021] How Are EV Supplier Stocks Doing?

Our theme of Electric Vehicle Component Supplier Stocks has done well this year, rising by about 17% year-to-date, compared to the S&P 500 which is up by about 16% over the same period. The theme has also considerably outperformed EV OEM stocks, such as Tesla and Nio, which remain down this year so far. That said, the EV market is clearly gaining traction following the Covid-19 related lockdowns, with manufacturers across the board reporting solid delivery figures for recent quarters. Tesla, for instance, delivered a record 201,250 cars in Q2, up by about 2.3x year-over-year, while Nio also more than doubled sales to about 22,000 units. Even mainstream automakers such as Nissan and Chevrolet have seen a rebound in their EV sales, as they commit to investing significantly in their electric roadmaps. This should bode well for the suppliers in our theme.

Within our theme, BorgWarner, a company that sells electrical products such as inverters, which are key to making drivetrains for electric vehicles, has been the strongest performer, with its stock rising by about 24% year-to-date, driven by its Q1 earnings beat and a stronger outlook for 2021. On the other side, Amphenol, a company that makes electrical, electronic, and fiber-optic connectors, has underperformed, with its stock up by about 8% year to date.

[6/11/2021] EV Suppliers Theme

Our theme of Electric Vehicle Component Supplier Stocks has done well this year, rising by about 17% year-to-date, compared to the S&P 500 which is up by about 13% over the same period. The theme has also fared much better than EV stocks such as Tesla and Nio , which remain down by about -16% and -20%, respectively, this year. We think the theme should continue to outperform in the medium to long term for a couple of reasons. Firstly, investors are shifting to cyclical and value stocks to play the re-opening post-Covid-19 and the companies in our theme – which includes components suppliers and mining companies – should stand to benefit. Moreover, mainstream automakers are also getting much more serious about their EV roadmaps. For instance, Ford recently unveiled its electric F-150 Lightning, as it looks to transition its cash cow, the F-Series pick-up, into the EV era. General Motors is also investing aggressively in EVs, with plans to launch 30 new models globally by 2025. Now although competition in the component space is also likely to mount as the EV market matures, the companies in our theme should benefit from an early mover advantage.

Within our theme, BorgWarner, a company that sells electrical products such as inverters, which are key to making drivetrains for electric vehicles, has been the strongest performer, with its stock rising by about 35% year-to-date, driven by its Q1 earnings beat and a stronger outlook for 2021. On the other side, Amphenol, a company that makes electrical, electronic, and fiber-optic connectors has underperformed, with its stock up by just about 4% this year.

[5/6/2021]

Our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – has fared well, rising by about 13% year-to-date, outperforming the stocks of EV manufacturers such as Tesla and Nio which remain down year-to-date. In comparison, the S&P 500 is up by about 12% this year. So will the outperformance continue? We think it will. While electric vehicles are the future, investing in OEMs is somewhat tricky at this juncture, considering the rich valuations of pure-play EV stocks, such as Tesla, and the relative risk that auto industry incumbents such as GM and Volkswagen face due to the low barriers to entry into the EV market, which is seeing a slew of new entrants competing for share. Electric vehicle supplier stocks, on the other hand, should be a safer way to play the broader electrification of the auto industry, without having to pick individual OEM stocks. Within our theme of EV supplier stocks, BorgWarner, a company best known for its transmission systems, has emerged as the strongest performer with its stock rising by about 30% year-to-date. On the other side, the stock price for Amphenol a company that makes a range of EV components such as charging inlets, charge plugs, sensors, and power distribution systems, is up by just about 3% this year.

[4/12/2021]

Our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – has fared reasonably well in recent weeks. The theme is up by about 9% year-to-date, compared to the S&P 500 which is up by about 10% over the same period. The theme has also returned about 45% since the end of 2019, compared to a return of about 28% on the S&P 500.

While EVs are no doubt the future, investing in OEMs is somewhat tricky in our view. Pure play EV names such as Tesla and Nio have grown quickly with well-received products, but their stocks look pricey after rallying by over 5x and 13x, respectively, over the last year. On the other side, automotive industry incumbents such as GM and Volkswagen are also investing large sums in electrifying their line-ups, but it is not clear that this will compensate for eventual declines in gasoline vehicle sales, as the playing field is getting more crowded. The barriers to entry into the EV market are not too high, and many new players are looking to enter the market. For example, Chinese smartphone behemoth Xiaomi plans to invest $10 billion in developing EVs. Now, total volumes in the auto market are unlikely to increase due to EVs (it could even decline as technology such as self-driving and robo taxis gain traction), meaning that competition could be more intense due to a larger number of players. Considering this, EV supplier stocks could be a relatively safe way to play the broader electrification of the auto industry.

Within our theme of EV supplier stocks, BorgWarner, a company best known for its transmission systems, has emerged as the strongest performer with its stock rising by about 20% year-to-date. On the other side, Albemarle, one of the largest producers of lithium for EV batteries, has fared the worst, with its stock remaining roughly flat year-to-date.

[3/24/2021] Volkswagen & GM Are Doubling Down On EVs, Will Suppliers Benefit?

Our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – is up by about 4% year to date, roughly in line with the S&P 500. The theme has also returned about 40% since the end of 2019, compared to a return of about 21% on the S&P 500. While some of the stocks in our theme have corrected a bit in recent weeks, we think the long-term outlook is strong. Mainstream automakers are making big commitments of shifting to EVs quickly and this could help suppliers in the medium term. For example, last week, Volkswagen (OTC: VWAGY) outlined a plan to become the world’s largest seller of EVs by 2025 at the latest, with the intention to invest around 46 billion Euros (about $55 billion) to electrify its lineup. Separately, in late January, General Motors – the largest U.S. automaker – announced that it would launch 30 electric models by 2025, with plans to sell only EVs by 2035. Within our theme BorgWarner – a company best known for its transmission systems – has emerged as the strongest performer this year, rising by about 15% year-to-date. On the other side, Amphenol Corporation, a company that makes electrical and fiber-optic connectors, has underperformed, declining by about 4%.

[2/25/2021] EV Supplier Stocks

Our indicative theme of Electric Vehicle Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – has outperformed rising by 8.3% year-to-date, versus 3.6% for the S&P 500. The theme has also returned about 45% since the end of 2019, compared to a return of about 20% on the S&P 500. Within our theme, auto parts major Aptiv has been the strongest performer this year, rising by over 16% since early January, driven by stronger than expected quarterly earnings, while Amphenol Corporation, a company that makes electrical and fiber-optic connectors, has underperformed, declining by about -2% year-to-date.

So will the theme continue to outperform in the near-to-medium term? Yes, we think so for a couple of reasons. Firstly, regulations under the Biden Administration are likely to be favorable for green technologies including renewable energy and electric vehicles. Secondly, mainstream automakers are making bigger commitments to electrification, and this should drive up demand for EV suppliers. For example, in late January, General Motors – the largest U.S. automaker – announced that it would launch 30 electric models by 2025, with plans to sell only EVs by 2035. There are other market-specific factors that could help EV supplier stocks as well. With Covid-19 vaccines being rolled out, investors are hoping for a quicker economic rebound, moving money away from technology names that rallied big through the pandemic to more real-economy sectors including auto components and mining stocks. This could also help the companies in our theme.

[Updated 12/29/2020]

Our indicative theme of Electric Vehicle Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – has fared quite well in recent weeks. Year-to-date gains for the theme are now up to 35%, versus the S&P 500 which is up by about 15% over the same period. While the recent gains are driven partly by the optimism surrounding the Covid-19 vaccines, investors are also likely looking at suppliers as a good way to play the rapidly expanding EV market without having to bet on pricey EV manufacturer stocks such as Tesla (up 7x this year) and Nio (up over 10x). Within our theme, Albemarle – the largest producer of lithium for EV batteries – has been the strongest performer, doubling year to date. The stock has rallied by over 60% over the last two months alone driven by an earnings beat and better than expected performance of its lithium business. On the other side, BorgWarner, a company best known for its transmission systems, has seen its stock decline almost -10% year-to-date, partly due to its exposure to mainstream automakers.

[Updated 10/19/2020] Why Suppliers Might Be A Better Way to Play The Electric Vehicle Market

Investing in the fast-growing electric vehicle market looks tricky at the moment. Pure-play EV stocks have rallied big this year and look overvalued. For instance, Tesla is up 5x this year, while China’s Nio is up over 7x. On the other hand, mainstream automakers who have been slowly transitioning to electric drivetrains could face financial challenges due to the disruption caused by Covid-19. Our indicative theme of Electric Vehicle Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – could be a good way to play the growing electric vehicle market, without having to bet on individual brands. The theme is up by about 9% year-to-date, versus the S&P 500 which is up by about 8% over the same period. While Albemarle is the strongest performer in the theme, up by about 30%, BorgWarner stock is down by about -10%. Below, is a bit more about these companies and how they’ve fared so far this year.

Albemarle is the world’s largest producer of lithium for EV batteries. Most electric vehicles are powered by lithium-based batteries and it’s likely that demand for the material will rise as EV adoption grows. The stock is up by about 30% year-to-date.

TE Connectivity provides a range of products including connector systems, sensors, and relays for a range of industries such as automotive, aerospace, defense, and oil and gas. The company has increasingly been focusing on products for hybrid and electric vehicles. The stock is up by about 14% year-to-date.

Amphenol Corporation sells a range of components used in EVs including charging inlets, charge plugs, various sensors, and power distribution systems. The stock is up by about 7% year-to-date.

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Aptiv provides a range of solutions for the auto industry, including autonomous driving technologies, safety technologies, components, and wiring. The stock is up 4% this year.

BorgWarner is an auto components and parts supplier best known for its manual and automatic transmissions. The company is doubling down on the EV space, producing electric motors, power transmission, and power electronics for electric vehicles. The stock is down -9.5% this year.

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Source: Forbes