These companies are powering up EV production as revolution charges ahead

As the global automotive industry enters a new era of disruption, legacy manufacturers are pouring large amounts of capital into electrifying their vehicles. With Tesla leading the way, old-guard automakers are rushing to design and deliver their own electric vehicles.

By all indications, the race has only just begun, and the EV market pie is expanding rapidly as better technology, falling battery prices, the mushrooming of charging infrastructure and global thrust to combat climate change continue to fuel demand and provide a strong tailwind for growth.

Market leader and the pioneer of the EV revolution,  Tesla (TSLA) jumpstarted the race for electric mobility when it introduced a more affordable Model 3 sedan, expanding its fleet which includes more expensive variants, Model X and Model S. The company also has a battery storage business.

The pure EV company has been consistently ramping up production. In the most recent quarter, it made a record 80,000 cars, twice as many as the quarter before. The milestone quarter also saw Tesla turn a profit of US$311.5 million, compared with a loss of US$619 million a year ago.

"Tesla has a chance to be the dominant electric vehicle firm and is a leader in autonomous vehicle technology," says Morningstar sector strategist David Whiston, but he cautions that it may take another decade for the firm to produce mass-market volume.

With a target of making 1 million cars in 2020, Tesla has been pushing to build what it calls its Gigafactory -- a lithium-ion battery production plant -- to crank up mass production. Whiston says: "Tesla's mission to make EVs increasingly more affordable means more assembly plants must come on line to achieve annual unit delivery volume in the millions."

To that effect, the EV maker's wholly-owned China plant will open in a few years, he adds. "Tesla's growth runway looks very lucrative, but this growth also requires constant substantial reinvestment in platforms [such as the Gigafactory]," says Whiston.

The Morningstar report doesn't accord Tesla a moat, but points to specific areas where Tesla enjoys a meaningful competitive edge. "Although we stress the uncertainty in investing in Tesla today, the company's competitive position is better than some may expect from a tech start-up that makes automobiles," says Whiston, who indentifies brand intangibles, cost advantages, efficient scale and long range per charge as potential sources of a moat in the future.

A European luxury brand known for its inspirational value,  BMW Group (BMWYY) is leading the European automakers' charge on EVs. The German carmaker, which owns popular brands like MINI, Rolls-Royce and the eponymous BMW, offers a range of electrified vehicles that are clocking strong sales.

Prompted by demand growth and its own commitment to clean energy, BMW is doubling down on its drive for e-mobility and plans to offer 25 electrified models by 2025.

"BMW plans to offer electrified powertrains for all models by 2020," says a Morningstar report, adding that the company's portfolio of 25 electrified models in 2025 will include 12 pure electric and 13 hybrid options.

The auto behemoth has built its competitive advantage on its name and intellectual property. "Brand strength has enabled premium pricing across all of BMW's products, while intellectual property supports the brand image with strong product execution, especially in powertrains," says Morningstar equity analyst Richard Hilgert.

BMW has continued to outperform the overall car market despite global economic uncertainties and is well positioned to benefit from the emergence of the middle class in developing countries. "As emerging-market consumers become wealthier, many will purchase luxury items for the first time," says Hilgert, who pegs the stock's fair value at US$45 per American Depository Receipt. "Given the aspirational nature inherent in the company's brands, including BMW cars and motorcycles, Mini and Rolls-Royce, as well as the growth potential from increasing wealth in developing markets, we believe the company will continue to reward investors with solid returns."

BMW has consistently produced vehicles that command superior pricing and margins, and has been generating revenue increases above global vehicle growth rates, he adds.

The largest U.S. automaker with a market share of 17.4% in 2017,  General Motors (GM) has eight brands and operates under three segments: GM North America, GM International and GM Financial. The automaker's portfolio of brands includes Chevrolet, GMC, Buick and Cadillac.

In a bid to assert itself in the EV market, the Detroit-based carmaker has invested heavily in electric vehicles such as the Chevrolet Bolt EV and Chevrolet Volt plug-in hybrid models. "General Motors believes in an all-electric future," says Mark Reuss, General Motors executive vice president of Product Development, in a release claiming that the company plans to offer 20 EVs globally by 2023.

A Morningstar equity report says GM's earnings potential is excellent. "The company finally has a healthy North American unit after a large-scale, multi-year restructuring and can focus its U.S. marketing efforts on just four brands instead of eight," the report notes.

As well, GM makes products that consumers are willing to pay more for than in the past, says Whiston. In other words, the company no longer has to overproduce in an attempt to cover high labour costs. Moreover, benefit concessions and plant closings have drastically reduced GM North America's break-even point. "GM now operates in a demand-pull model where it can produce only to meet demand, [and] is structured to do no worse than break even at the bottom of an economic cycle," says Whiston, who estimates the stock's fair value to be US$45.

As a result, GM is "about to see the upside to having a high degree of operating leverage [as well as] higher profits despite lower U.S. market share," forecasts Whiston.

The company is also moving to capitalize on the fast-growing sharing economy and is expected to start autonomous ride hailing at scale in 2019.

Editor's note: The author owns a small position in shares of Tesla.