Ride the EV Megatrend
Daimler AG

Ride the EV Megatrend

Managers at Ford Motor Company (NYSE: F) announced last week that the company will invest $29 billion in electrification and self-driving systems through 2025.

As if this wasn’t enough of a reminder … it’s time for investors to get off the fence … electrification and vehicle autonomy are happening.

Electrification is key to the digital transformation of automobiles. Always-on future vehicles will be another node on the network. Ultimately, this will lead to better traffic management, autonomous taxis systems and machine-to-machine digital payments.

Microsoft Corp. (Nasdaq: MSFT) is building the world’s largest connected car platform. Product managers at the software giant have secured buy-ins from Volkswagen AG (OTCM: VWAGY), the Renault SA (OTCPK: RNLSY)-Nissan Motor Co., Ltd. (OTCPK: NSANF)-Mitsubishi Motors Corp. (OTCPK: MMTOF)-Mitsubishi alliance, BMW and Daimler AG (OTCPK: DDAIF).

Meanwhile, Alphabet, Inc. (Nasdaq: GOOGL) is taking another tack by leveraging its Android mobile platform to establish a foothold in infotainment operating systems. A collaboration with Ford was announced last week that could be worth $300 million.

NVIDIA Corp. (Nasdaq: NVDA) is playing an even longer game. The company has partnerships with 350 car companies, suppliers and research facilities. Its Drive AGX platform features a powerful onboard computer and software system that managers claim is powerful enough to process data simultaneously from multiple camera and radar sensors. Drive has become the cornerstone of self-driving strategies at many automakers.

Related Post: 4 Stocks for the New Age of Electric and Connected Cars

NIO Ltd. (NYSE: NIO), a fast-growing Chinese automaker, revealed in February that Drive will collect and process sensor data from 33 sensors found on its groundbreaking ET7 sports sedan.

Automotive camera sensors have become an important new business at Sony Corp. (NYSE: SNE). And Lumentum Holdings, Inc. (Nasdaq: LITE) builds the laser components being used for the next generation of low powered LED lighting and LiDAR sensors.

The Ford announcement is an all-clear signal: It’s time for investors to move beyond passive infrastructure investments. By most metrics, Tesla, Inc. (Nasdaq: TSLA) is the industry leader, and shares have had a mighty run higher.

Here are some names that should catch up:

Magna International Inc. (NYSE: MGA) is the world’s third-largest automotive parts supplier. In December 2020, the Canadian firm began working with LG Electronics to make modular battery packs compatible with a wide range of vehicle brands. This news comes a year after Magna managers formed a joint venture with BAIC Group, a Chinese company. The pair will contract manufacture up to 100,000 EVs annually in China.

NXP Semiconductors N.V. (Nasdaq: NXPI) makes the semiconductors and connectivity systems that have become the lifeblood of EVs. The Dutch company reported fourth-quarter sales last week of $2.5 billion, up 9% from a year ago. The automotive division had revenues of $1.1 billion, up 24%. Investors should keep in mind this kind of growth is likely for car companies beginning to make more EVs.

In terms of actual automakers, one way to play this trend is with geographic winners.

NIO is growing fast in its homeland, the largest automotive market in the world. The Chinese company sold 7,225 vehicles in December, an increase of 352% from a year ago. And those numbers do not include the eye-catching NT7.

Shares have been strong, rising 1,428% during the last 12 months. Although the stock is currently in a pullback, down almost 6% in the past month, shares still trade at 31.8 times sales.

Related Post: BMW Lays Plans to Electrify Your Commute

Volkswagen is neck-and-neck with Toyota Motor Corp. (NYSE: TM) for the title of the world’s largest automaker by production. The European juggernaut has 20 EVs in production and has committed $100 billion to digitalization, electric battery development and hybrid vehicles through 2029.

CEO Herbert Diess believes the future of EVs will be a race with Tesla and he is committed to winning. Shares trade at 9.2 times forward earnings and 0.5 times sales.


 

In the United States, the automaker with the most upside is General Motors Co. (NYSE: GM).

Under CEO Mary Barra, the Detroit-based company has moved forward fast with EVs. Its new Cadillacs have head-turning good looks and the right technology flourishes to appeal to a big part of the market. The company is also investing $27 billion to accelerate its Ultium modular battery platform. GM trades at 9.2 times forward earnings and 0.7 times sales.

The EV megatrend is here, and savvy investors will take advantage of it.

Best wishes,

Jon D. Markman

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