The global EV ecosystem got a timely shot in the arm last week as the EU nations set in motion a plan to impose an outright ban on fossil fuels-powered vehicles from 2035. The move coincided with the Biden administration’s rollout of a US$5 billion plan to build a 500,000 electric vehicle charging stations and boost the percentage of EV and plug-in hybrid vehicles to 50% of all new vehicle sold across the U.S. by 2030.
The global EV market is projected by the International Energy Agency (IEA) to climb from 10 million electric cars in 2020 to 230 million vehicles by 2030, supported by favourable regulatory policies, improved charging infrastructure and faster uptake.
The current rate of proliferation and future growth potential of electric vehicles put the following automakers on a long-term growth runway. Investors looking to ride the EV tide may want to keep these names on their screen.
The most powerful of EV plays, Tesla (TSLA) makes a range of electric cars with larger vehicles -- a light truck, a semi truck, and a sports car -- in the pipeline. It is also an energy company selling battery storage.
Tesla is the largest EV maker in the world. “In less than a decade, the company went from a startup to a globally recognized luxury automaker with its Model S and Model X vehicles,” says a Morningstar equity report.
Tesla’s is well positioned to maintain its market leader position as EV proliferation intensifies on the back of mass consumer adoption. The pioneer of EV mobility sold over 936,000 cars in 2021. “We view 2022 as a transition year for Tesla,” says Morningstar equity analystSeth Goldstein, forecasting the automaker’s “vehicle delivery volumes to grow over 60% year on year.”
Tesla could see near-term cost headwinds as new factories in Austin, Texas, and Berlin “will likely weigh on profitability as production will ramp over time,” cautions Goldstein, who puts the stock’s fair value at US$750.
However, over the next several years, Tesla's profit margins are expected to expand as the company drives down unit cost per vehicle.
Goldstein projects Tesla to increase its annual total vehicle delivery volume to roughly 5.4 million by 2031, nearly 6 times the 936,222 vehicles delivered in 2021.
The largest U.S. automaker, General Motors (GM) has eight brands and operates under four segments: GM North America, GM International, Cruise and GM Financial.
Although GM lost its U.S. market share leader crown in 2021 due to an acute chip shortage, “we expect GM to reclaim the top spot in 2022,” says a Morningstar equity report, adding that “GM's earnings potential is excellent because the company has a healthy North American unit and a nearly mature finance arm with GM Financial.”
The legacy automaker is making a strong push into the burgeoning EV market with a staggering US$35 billion investment in battery electric and autonomous vehicles for 2020-25. GM is also launching 30 BEVs through 2025 with two thirds of them available in North America. “Management also targets over 2 million annual BEV sales by mid-decade and in early 2021 announced the ambition to only sell zero-emission vehicles globally by 2035,” points out Morningstar sector strategist, David Whiston.
He recently lowered the stock’s fair value to US$70 per share from US$72, to reflect the nearly US$5 billion of 2022 cash outflows to buy SoftBank's stake in autonomous ride-hailing firm Cruise.
On the bright side, a leaner and nimbler GM makes products that consumers are willing to pay more for than in the past. “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 when plants can be open,” Whiston says.
German auto behemoth, Volkswagen (VWAPY) is one of the world's largest automotive manufacturers. Its product portfolio includes many popular and premium brands including Volkswagen passenger cars, Audi, Bentley, Lamborghini, Porsche, SEAT, and Skoda. The company also offers financial services through a separate division.
Volkswagen is transitioning to zero-emission electric vehicles from internal combustion engines. “Volkswagen is successfully executing a global automotive strategy and has one of the most aggressive plans to transition to BEVs from internal combustion powertrains,” says a Morningstar equity report.
Volkswagen's MEB platform underpins its current BEV offensive. Dedicated for electric vehicles, MEB platform is projected to produce as many as 27 BEV models by the end of 2022. “In 2023, Volkswagen will launch its unified battery cell strategy that targets an 80% sales volume penetration by 2030 and anticipates a 50% entry-level segment battery cell cost reduction as well as 30% savings in the volume segment,” notes Morningstar equity analyst Richard Hilgert, who pegs the fair value of the company's American Depository Share (ADS) at US$37 and forecasts 8% consolidated revenue on 5% volume growth for 2022.
Prompted by the Biden administration’s support for EVs and their growth potential in the U.S. market, VW is planning to build new electric vehicle and battery facilities in the U.S.
Further, the company has set up a US$22 million battery engineering and testing facility in the U.S. Hilgert cautions, thought, that while the company currently sells EVs, gas-powered vehicles may be sold for at least the next decade.
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