According to research firm McKinsey & Co. up to 45% of car buyers in the US, Germany, and China are seriously considering an electric car as their next vehicle purchase . Aside from going green to lower their carbon footprint…
Why are so many consumers interested in buying an EV?
There’s no lack of reasons. For starters, EVs are not only getting cheaper to produce, but cheaper to purchase as well. In fact, the average price of an EV in the US fell from $64,300 to $55,600 last year. EV’s also have a higher driving range than ever before, going from an average distance of 73 miles per charge in 2011 to 125 miles per charge in 2018, with some models already eclipsing 300 miles per charge (as much as a gas powered vehicle on a single tank of fuel). Plus, more fast-charging stations are being installed as well, with more than 63,000 new stations installed in the US since March 2019.
According to a Deloitte report, global EV sales are predicted to hit 21 million by 2030 after reaching 1 million in 2017 and 2 million in 2018.
This offers a promising market for savvy investors over the next decade and beyond. But what’s really promising is that this increase in revenues and investment opportunities goes far beyond just that of carmakers and car sales…
Investors are getting granular with EVs and looking at vertical integrations for opportunities. This means that bulls are buying up EV suppliers and technology partners just as much as they are EV manufacturers…
For those looking to leverage this market without having to buy Tesla, consider the following company types when evaluating investment opportunities:
Buy battery makers
Electric Vehicles are an evolutionary leap for car technology, but it’s the battery that makes all of this possible. It’s the single most important part of an EV because it dictates the range, power output, and (to a lesser degree) charging time. Battery performance is what potential buyers look at when considering a new electric car, aside from just the looks. That’s why automakers are investing tens of billions of dollars into developing battery technology of their own for the future. But dedicated battery makers have an opportunity to generate significant profit and revenue right now.
Panasonic (OTCMKTS:PCRFY), one of the biggest players in battery technologies for the past decade, is a perfect candidate. While mostly known for consumer electronics, Panasonic also supplies electric car batteries to Tesla, Honda, and Toyota.
In January, the company formed a joint venture with Toyota to develop batteries — both lithium-ion and solid-state — that give EVs a higher driving range per charge. The battery maker will also supply these new products to carmakers including Mazda, Subaru, and Daihatsu. Panasonic’s partnerships make this a lucrative opportunity, but the fact that the company has distribution channels with automakers outside of their joint ventures means that Panasonic could truly dominate the EV battery market for years to come.
Even if this Japanese stock is only traded over-the-counter here in the US, it’s liquid enough to invest in since its daily volume reaches 100,000 shares regularly. Panasonic also yielded a dividend of 3.5% during the last 12 months, making it very appealing for buy-and-hold investors.
Other major players listed in Asian markets that American investors may have limited visibility on include. BYD and CATL in China while Samsung SDI, LG Chem, and SK Innovation are in South Korea.
Buy specialized auto-component manufacturers
These companies make parts that are essential to how a modern car works, whether they’re powered by an internal combustion engine (ICE) or a battery. Automakers will still be doing business with them even when gas-powered vehicles become a much smaller share of the market.
One company that immediately comes to mind is Aptiv (NYSE:APTV), a Dublin-based company which makes electrical components like wiring assemblies, electrical centers, high voltage connectors, charging ports, safety distribution systems, etc. They forecast around a 5% growth in revenue this year, and their earnings went up by 12% at the end of 2019.
A similar company located in the US is Amphenol (NYSE:APH), based out of Wallingford, CT. APH makes technology solutions for hybrid-electric cars, specifically sensors, antennas, light assemblies, infotainment, and power management systems. Their earnings rose by 7.69% during the last quarter of 2019.
For investors looking to hedge a bullish position, consider BorgWarner (NYSE:BWA) as a way to diversify during the transition period to electrified transportation. They’re one of the largest parts suppliers for gas-powered vehicles while also generating revenue from electric vehicles.
Buy semiconductor companies
Computer chips are the brains of electric cars. This technology is central to the vehicle’s mechanical and electrical systems. As cars become more technologically advanced, computer chips will play a larger and more crucial role in advanced driver-assistance systems (ADAS) and self-driving cars. Some specialized semiconductor companies worth considering include:
NXP Semiconductors (NASDAQ:NXPI), the largest supplier of integrated circuits for the automotive industry, with a market share of 11%. NXPI generates 48% of their revenue from cars by making chips for entertainment systems and in-vehicle networking, as well as ADAS systems and battery management systems for EVs.
Another company that sells automotive-related chips is ON Semiconductor (NASDAQ:ON), which has a market share of 4% and generates more than 30% of their revenue from the auto industry. They’re highly involved in EVs and self-driving cars, with $500 worth of chips for a non-autonomous EV and a whopping $1800 for a self-driving model.
Buy lithium suppliers
Lithium supplier companies provide chemicals needed for the production of batteries, including those used for applications outside of cars.
Albemarle (NYSE:ALB) has 25% of the lithium market and provides vital components for electric car batteries. They were able to secure long-term contracts due to the 60% increase in global EV sales in 2019 and gave shareholders a 2.4% dividend that’s less than its 25% earnings last year.
Another lithium supplier is Sociedad Quimica y Minera de Chile S.A. (NYSE:SQM), which raised its expected sales to 50,000 tons thanks to higher output from its Atacama salt flat. They are eyeing long-term growth by sustaining their output levels and accumulating inventory that they can sell to for higher prices if the timing is right.
But the best opportunity is…
While this guide highlights several opportunities for investors to generate profit outside of automaker stocks, the truth is that car manufacturers still provide the best opportunity for investors looking for profit in the EV space.
The EV market is expected to grow by 25.6% each year from 2019 until 2026, according to Acumen Research and Consulting. By 2026, it’s estimated to be worth more than $567 billion.
For now, you can feel confident investing in automakers and the companies they work with.