Legacy Automakers Electrify Lineups

These automakers are on the road to sustainable mobility

Vikram Barhat 20 January, 2021 | 1:28AM

General Motors building

The automobile market has had an electrifying start to 2021. Old-guard automakers are finally shifting gears to plug into the global pivot to green mobility after resisting for years to meaningfully commit to electric vehicles. What does that look like for investors?

The momentum picked by the EV market appears to be unstoppable and its appeal irresistible. Last week, one of the biggest legacy automakers General Motors created headlines when it unveiled an electric delivery van as part of it plans to spend US$27 billion through 2025 to develop electric and driverless vehicles. The announcement came close on the heels of reports about Silicon Valley Tech giant Apple planning to launch its own driverless, electric vehicles.

As new and legacy automakers join the frenzy over renewable energy-powered vehicles, the global EV market is projected by the International Energy Agency (IEA) to skyrocket from 7.2 million vehicles in 2019 to 245 million vehicles by 2030, growing 36% annually. As technology progress and battery prices fall, the adoption of electric vehicles is expected to continue to expand significantly, led by China which is forecast to account for half of the global EV market.

The plug-in vehicles industry also receives robust and growing support from environmental and regulatory policies enacted by governments around the world. Investors looking to harness the EV revolution may want to keep the following automakers on their screen. These automakers have announced a diversified menu of electric vehicles to be rolled out in 2021 and over the next several years, including, by one estimate, as many as 450 EV models by 2022.

 

General Motors Co.
  Ticker GM
  Current yield: -
  Forward P/E: 8.14
  Price US$51.53
  Fair value: US$58
  Value 16% discount
  Moat None
  Moat Trend Negative
  Star rating ****
Data as of Jan 14, 2021

The Detroit-based automotive giant, General Motors (GM) has seven brands and operates under four segments: GM North America, GM International, Cruise, and GM Financial. The company remains the market leader in the U.S. with 17% share in 2019.

The company made headlines with the unveiling of EV Hummer last year, due to roll out in 2022. With more than US$27 billion earmarked for EV production, the company plans to roll out several EV models over the next several years, including an electric van due to launch later this year. There’s even a flying car in the offing.

“GM announced [at the recently concluded Consumer Electronics Show] an aggressive move into commercial electric vehicles called BrightDrop and also showed concept Cadillac designs that we liked including a more luxurious looking version of GM Cruise’s Origin autonomous vehicle unveiled a year ago and an air taxi,” says a Morningstar equity report.

GM is launching 30 BEVs through 2025 as “management targets over 1 million annual BEV sales by middecade,” notes Morningstar sector strategist David Whiston, who recently raised the stock's fair value from US$52 to US$58, primarily due to adding BrightDrop service revenue and "likely future cost efficiencies from GM’s continued electric vehicle roll out over this decade."

By 2025, Whiston forecasts, GM could gain a low-single-digit market share of U.S. delivery services, a market estimated to be worth US$850 billion.

 

Volkswagen AG ADR
  Ticker VXAPY
  Current yield: 3.25%
  Forward P/E: 7.35
  Price US$18.40
  Fair value: US$30
  Value 41% discount
  Moat None
  Moat Trend Negative
  Star rating ****
Data as of Jan 14, 2021

German auto behemoth, Volkswagen (VWAPY) owns many premium and exotic car brands including Volkswagen, Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, and Skoda. The company also provides dealer and consumer financing.

In an all-out pursuit of global EV leadership, Volkswagen is injecting a staggering US$86 billion in EVs and new technologies. The automaker is well-positioned to benefit from the rapid adoption of EVs, particularly in Europe. While car sales in Europe fell 25% in 2020, year over year, due to the COVID-19 fallout, electric vehicles continued to experience a demand surge. Volkswagen recently reported it sold 212,000 electric cars world-wide in 2020, a 158% annual jump. This includes the delivery of 134,000 battery-electric vehicles, representing a 197% annual growth.

Although higher spending to launch electrified powertrains and diesel headline risk create a drag, “but with an enviable portfolio of brands, a bevy of new and redesigned models, leading shares in many of the world's markets, and a healthy pile of cash, Volkswagen has been able to endure substantial fines and judgments while maintaining spending for new technology vehicle launches,” says a Morningstar equity report.

In fact, global demand for Volkswagen products has been steady to slightly higher despite headwinds, the report adds.

Further, Volkswagen is successfully executing a global automotive strategy aided by “geographically diverse and profitable operations [that] reduce its dependence on domestic volume,” says Morningstar equity analyst Richard Hilgert, who pegs the stock’s fair value at US$30.

 

Ford Motor Co
  Ticker F
  Current yield: -
  Forward P/E: 9.35
  Price US$10.17
  Fair value: US$13
  Value 25% discount
  Moat None
  Moat Trend Negative
  Star rating ****
Data as of Jan 14, 2021

American auto major, Ford Motor (F) owns and operates Ford and Lincoln brands. The company has about 14% market share in the U.S. and about 7% in Europe. North America and Europe account for 68% and 20% of auto revenue, respectively.

Ford has been making rapid strides in the EV space. As part of its US$11.5 billion investment in electrification through 2022, the automaker recently added an all-electric commercial van to its growing fleet of EV offerings. This is in addition to the all-electric Mustang Mach-E it rolled out in December last year and the all-electric F-150 which is due to hit the market in 2022. In North America, Ford is the first full-line automaker with plans to produce both an all-electric full-size pickup truck and a full-size van.

“The Mustang Mach-E should bring new customers in U.S. coastal markets,” says a Morningstar equity report, adding that Ford is moving from 27 platforms in 2017 to five flexible architectures across unibody, body on frame, and battery electric vehicles, to lower costs and improve economies of scale.

While the sale suffered due to the pandemic, “with a COVID-19 vaccine rolling out in 2021, we think 2020’s full-year total of 14.46 million is the bottom of this cycle, and we expect robust year-over-year growth in 2021,” says Whiston, who recently upped the stock’s fair value from US$8 to US$13.

 

Bayerische Motoren Werke AG ADR
  Ticker BMWYY
  Current yield: 3.24%
  Forward P/E: 8.44
  Price US$28.30
  Fair value: US$47
  Value 40% discount
  Moat None
  Moat Trend Negative
  Star rating ****
Data as of Jan 14, 2021

One of the world's leading premium vehicle manufacturers, BMW Group (BMWYY) owns an enviable portfolio of brands including BMW, Mini, and ultraluxury brand Rolls-Royce. The company operates 31 production facilities in 15 countries and sold 2.5 million automobiles worldwide in 2019.

While it has been grappling with near-term margin contraction from higher spending for autonomy and electric powertrain, COVID-19 disruption, and higher spending for electrified powertrain, “in the long term, BMW will maintain one of the highest levels of profitability among global automobile manufacturers,” says a Morningstar equity report, adding that the company targets 25 electrified models in 2023.

As part of its 10-year sustainability plan, the BMW aims to sell more than seven million vehicles with electrified drive systems worldwide by 2030. The company sold more than 500,000 electric vehicles in 2019 and forecasts the number to rise to over a million by the end of 2021.

The narrow-moat carmaker has continued to outperform the overall car market despite global economic uncertainties from the coronavirus. Moreover, BMW could benefit significantly from the growing affluence in emerging economies. “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,” says Hilgert, who appraises the stock to be worth US$47.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bayerische Motoren Werke AG ADR29.30 USD1.07
Ford Motor Co12.55 USD4.76
General Motors Co54.11 USD2.99
Volkswagen AG ADR21.37 USD0.99

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

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