By Philip van Doorn, MarketWatch
He also said that Nio’s battery-swapping network not only makes it easier for a customer on a long trip to quickly switch to a new battery and move on, it can enable the customer to switch battery sizes without buying a new car. These may be excellent selling points even over Tesla.
Kim advised against trying to pick winners among expensively-priced EV stocks and instead named three large suppliers of parts and technology to EV manufacturers and noted that these suppliers also benefit from the trend toward higher-tech driver-assist and safety features in all cars.
Also included in this table is Infineon Technologies AG /zigman2/quotes/203514023/composite IFNNY +0.40% /zigman2/quotes/203152288/delayed XE:IFX +0.32% , a German semiconductor company cited by Simon Webber, a portfolio manager with Schroders in London.
|Company||Ticker||Forward price/earnings ratio||Total return - 2020 through Sept. 8||Share 'buy' ratings|
|Aptiv PLC||/zigman2/quotes/204162392/composite APTV||27.0||-11%||79%|
|Lear Corporation||/zigman2/quotes/203548859/composite LEA||10.5||14%||44%|
|Continental AG ADR||/zigman2/quotes/204017576/composite CTTAY||15.5||-4%||28%|
|Infineon Technologies AG ADR||/zigman2/quotes/203514023/composite IFNNY||28.1||16%||59%|
On the table above, Contental AG’s ADR is included. The main ticker is in Germany /zigman2/quotes/206791451/delayed XE:CON +1.62% .
Kim called Aptiv /zigman2/quotes/204162392/composite APTV +0.85% a “global tier 1 supplier” of electronic systems and components, as well as safety systems, around the world. Even buyers of traditional cars are clamoring for as many safety features as possible. Aptiv’s major competitors in the safety space are Bosch, which is privately held, and Continental AG, Kim said.
Lear /zigman2/quotes/203548859/composite LEA +1.72% is one of the largest suppliers of vehicle seats. But the company also has an electronics business competing with Aptiv, Kim said.
The stocks have been under pressure this year because of volume declines at major traditional manufacturers given the Covid-19 crisis, he said.
Aptiv, Lear and Continental are among suppliers that “have important roles to play, especially around things like autonomous vehicles,” Robinson of Lux Research said.
Webber called Infineon Technologies a global leader in semiconductors that manage power coming out of a motor. “When you transition from a combustion vehicle to an EV, you need three or four times the power management content,” he said. His fund owns shares in the company.
A beefed-up electric grid and batteries
Webber co-manages the Hartford Schroders International Stock Fund /zigman2/quotes/206840490/realtime SCIEX +1.16% , which is rated five stars (the highest rating) by Morningstar.
Even though shares of EV makers have performed so well, investors are underestimating the potential size of the EV market, he said.
“If you are brave enough to imagine a different future and look where policy makers are setting medium to long-term targets, it is clear that in large parts of Europe and America, in 10 to 15 years time, it can be close to 100% penetration for electric vehicles,” he said in an interview.
For the new car market, in Europe especially, “if you are not able to drive your [ICE] vehicle into certain places, or face [an onerous] tax regime, then simply the economics will point you in a certain direction,” he added.
Webber said that in Norway, more than half of new car sales are now EVs, because of “a really big package” of government incentives.
Despite a global decline in EV sales in 2019 and during the first quarter of 2020, sales in Europe continued to rise rapidly, according to this McKinsey report .
When discussing range anxiety, a common sticking point for people in the U.S. considering electric cars, Webber said that in Europe, Tesla’s charging network can now take him “anywhere,” and that recent recharging at the Tesla stations had taken about a half-hour, including the wait time for the charger.
But putting a practical charging network in place in the U.S. is going to take longer, he said.
In Europe, Webber sees opportunities for investors in electric companies, including National Grid, and Red Electrica, which are electric utilities, Schneider Electric S.E. and Eaton Corp. PLC, which make electric components, and Alfen NV, which designs and builds vehicle charging equipment and energy storage systems.
This table includes the above five companies with their local tickers:
|Company||Ticker||Country||Total return - 2020||Share 'buy' ratings|
|National Grid PLC||/zigman2/quotes/208805676/delayed UK:NG||U.K.||-7%||78%|
|Red Electrica Corp. SA||/zigman2/quotes/202961890/delayed ES:REE||Spain||-6%||28%|
|Schneider Electric SE||/zigman2/quotes/200216351/delayed FR:SU||France||18%||57%|
|Eaton Corp. PLC||/zigman2/quotes/205393239/composite ETN||Ireland||9%||56%|
|Alfen NV||/zigman2/quotes/204310647/delayed NL:ALFEN||Netherlands||220%||0%|
Three of the above also trade under ADRs:
|National Grid PLC||/zigman2/quotes/209300382/composite NGGTF|
|Red Electrica Corp. SA||/zigman2/quotes/205900862/composite RDEIY|
|Schneider Electric SE||/zigman2/quotes/201742594/composite SBGSY|
Webber also sees “a long runway for growth” for battery manufacturers.
|Company||Ticker||Country||Forward price/ earnings ratio||Total return - 2020||Share 'buy' ratings|
|Samsung SDI Co.||/zigman2/quotes/202065513/delayed KR:006400||South Korea||28.8||85%||91%|
|LG Chem Ltd.||/zigman2/quotes/207159357/delayed KR:051910||South Korea||28.3||123%||91%|
|Contemporary Amperex Technology Co. Class A||/zigman2/quotes/206979434/delayed CN:300750||China||59.6||92%||86%|
|Panasonic Corp ADR||/zigman2/quotes/202333059/composite PCRFY||Japan||22.2||-3%||24%|
The above tickers are all for the main listing, except for Panasonic, which is an ADR. Tesla’s battery-making partner’s home market is the Tokyo exchange /zigman2/quotes/201785256/delayed JP:6752 -0.32% .
Traditional auto manufacturers take on Tesla
Kim expects to see a “duopoly” between Tesla and Volkswagen /zigman2/quotes/204431732/composite VWAGY -0.38% /zigman2/quotes/203434344/delayed XE:VOW3 +1.33% /zigman2/quotes/206919008/delayed XE:VOW -0.15% . “VW has scale, clearly, and Tesla is synonymous with EVs, particularly with younger consumers,” he said.
Among traditional car manufacturers moving into EVs, Webber believes BMW /zigman2/quotes/202432319/delayed XE:BMW +1.39% /zigman2/quotes/200850296/composite BMWYY +1.34% will be one of the dominant players, along with Tesla and Volkswagen. He has “higher conviction” for BMW than he has for VW, because of its long investment in the EV space.
“BMW with the I series and the MINI have are already selling quite significant electric volumes,” Webber said. “They are well ahead in this transition. It is the companies trying to make money with gasoline vehicles that worry you.”
George Schultze, CEO of Schultze Asset Management, based in Rye Brook, N.Y., favors General Motors Co. /zigman2/quotes/205226835/composite GM +0.54% as a value play on the transition to electric vehicles. For one thing, GM’s shares trade for only 6.6 times the consensus forward earnings estimate among analysts polled by FactSet. Among 18 analysts covering GM, 15 rate the stock the equivalent of a “buy.”
During an interview, Schultze, who owns GM shares in the accounts he manages, described the company as “a hybrid between old and new” that has deep pockets to fund continued development in EVs and autonomous vehicles. The Nikola deal supports that idea, he said. In addition, GM is refurbishing a plant in Detroit to build electric vehicles and expects to roll out electric pickup trucks for sale next year.
Schultze expects GM to set trends with autonomous vehicles, in part because it can funnel its cash flow from traditional vehicles into new areas. This could lead to an unlocking of value if the company decides to spin off its EV unit.
When asked during GM’s second-quarter earnings call on July 29 about whether the company was considering such a spinoff, especially in light of investors’ appetite for EV stocks, CEO Mary Barra said “nothing is off the table,” and that she and her team were “open to looking at and [evaluating] anything that we think is going to drive long-term shareholder value,” according to a transcript provided by FactSet.