Electric cars: betting on the right horses

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Behind Tesla (TSLA, $902.94), many traditional manufacturers such as Volkswagen (VOW.DE, €204.00), General Motors (GM, $37.91), Stellantis (STLA.MI, 12, 59 euros) and Ford (F, 14.27$US), have stepped on the gas in recent years to carve out a place in the fast-growing market for electric vehicles.

However, these companies aren’t the only ones looking to capture their share of this lucrative market. Chinese companies such as XPeng (XPEV, $25.39), BYD (BYDDY, $58.00), NIO (NIO, $17.50), and Li Auto (LI, $22.43), and Americans like Rivian (RIVN, $31.74) and Lucid (LCID, $19.06) also want their piece of the pie. And for good reason!

The electric vehicle market really took off in 2021. Last year, 6.6 million new electric vehicles were registered worldwide, or nearly 9% of total car sales, according to data from the International Energy Agency (IEA). . That’s more than double the 3 million records listed in 2020 and triple the 2.2 million in 2019.

Commenting on the IEA data, analyst firm S&P Global Platts Analytics notes that while electric car sales are up more than 100% year-on-year, gasoline-powered cars ended 2021 up just 2.8%. This means that virtually all the progress experienced by the automotive industry in the last year has been made thanks to electricity.

According to S&P Global Platts, the trend does not stop there, which since February has been betting on the sale of 26.8 million electric vehicles worldwide in 2030, a forecast 23% higher than the previous one, released in June 2021.

The sector also has good years ahead, as many countries interested in reducing their dependence on oil, including Canada, have very aggressive growth targets for electric car sales.

On the occasion of the opening of the Montreal Electric Vehicle Show, held from April 22nd to 24th, the Minister of Innovation, Science and Industry, François-Philippe Champagne, reiterated the will of the federal government that 50% of new vehicles sold in Canada in 2030 will be electric and 100% in 2035, when they constituted just 5.2% of sales in 2021, according to data from Statistics Canada.

It’s hard to think about the electric car industry without mentioning the world’s number one name in the industry, Tesla. Daniel Ives, an analyst at Wedbush, believes that the company founded by Elon Musk should be in any portfolio betting on the electrification of cars. “The biggest mistake many investors will make is trying to find the next Tesla,” he said. There is only one Tesla. Trying to find another is a bad strategy.

“In the long term, we are very optimistic about the electric car sector. This is a market that could reach US$ 5,000 billion in ten years. It’s the biggest turnaround in the automotive industry since the 1950s and we look at electric vehicles like we did on the Internet in 1997,” he says.

Investors looking to reduce the environmental footprint of their portfolio by betting on the electric vehicle industry are therefore left with no choice. On the other hand, to get rich by betting on the long-term growth of the industry, the most interesting options may not be where you think.

“Even if we want to make a responsible investment, the main objective of any saver should be to make money. When you have companies that have never sold a car and are able to get billions of dollars in an initial public offering, it cannot be sustainable in the long term,” warns Félix-A. Boudreault, managing partner of Sustainable Market Strategies and Nordis Capital, companies specializing in responsible investment.

For example, Rivian went public at $78 a share last November, reaching about $12 billion. The initial public offering valued the company at nearly $67 billion. After a quick jump above $179, the stock gradually came back to reality and was worth just $31 in early May.

Felix-A. Boudreault compares the emergence of electric vehicles to the gold rush of 1848 to 1855 in California. “At that time, those who made the most money were not necessarily the researchers, but those who sold pickaxes and shovels”, he illustrates.

Likewise, the latter clarifies that in the supply chain that makes an electric car exist, there are interesting companies that supply parts, of which the best known are obviously batteries.

“Besides batteries, there are a lot of parts or systems that are really unique to EVs that make a very specialized supplier a less risky investment than a manufacturer if you have a lot of customers. It might be less sexy, but that’s where we put our money,” he says, citing American Dana (DAN, $14.84), Canadian Magna International (MG, 78, $21), French Valeo (FR .PA, 16.98 euros) and the Japanese Denso (6902.T, 7,792 yen).

“These companies have multiple customers. If a deal with a company like Rivian doesn’t work out, that’s fine, because they also do business with big builders, he says. In the end, they are the ones who can win the race.”

the Tesla model

In his opinion, Tesla has done an exceptional job of showing that it is possible to challenge the giants of the automotive industry in a historically very conservative world. However, in recent years, the big traditional manufacturers have invested heavily to catch up with Elon Musk’s company.

“The companies that will challenge Tesla will not be Rivian, Lucid or Nikola, but Renault (RNO.PA, 23.26 euros), General Motors, Volkswagen, Toyota (TM, US$ 169.81) and Ford,” he says. he.

Of this group, the investor likes Volkswagen, the second world player in the sector and first in Europe, which has “an infinitely greater production capacity than Tesla and other concept companies”.

Felix-A. Boudreault believes that bad students are becoming increasingly rare in the industry and that it is becoming difficult to recommend that investors sell bonds short. “A year or two ago, before Fiat-Chrysler became Stellantis, the company didn’t take it seriously. The leaders even signed a $3 billion deal over five years to buy all of Tesla’s carbon credits, allowing it to declare its first profits. Since then, however, the situation has changed dramatically,” he says. According to the IEA, Stellantis was at the end of 2021 the second largest electric car manufacturer in Europe, behind Volkswagen and ahead of Tesla, and the fifth largest in the world.

According to Daniel Ives, despite the rise of traditional manufacturers, Tesla is not about to lose its crown as world number one. “The company has just opened the Giga Texas plant in Austin, whose goal is to produce 500,000 vehicles a year. The Giga Berlin factory comes with the same objective, without forgetting the increase in the pace of production in Shanghai. We believe the industry will reach $5 trillion in ten years and Tesla will capture half of that.”

That would leave $2,500 billion for every other builder struggling to carve out a place in the industry.

To (re)read:

20 electric vehicle industry stocks to watch


Electric vehicles: diversified investments thanks to ETFs?


A supply chain issue


20 electric vehicle industry stocks to watch

Electric vehicles: diversified investments thanks to ETFs?

A supply chain issue

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