UBS on how to invest in electric cars, increasing use of electric vehicles
Demand for electric vehicles is expected to grow in the coming decades – and UBS has identified a theme for investors to cash in on that electrification. UBS said increasing amounts of electronic content in vehicles will lead to new supply chains, as automakers increasingly work directly with semiconductor firms and new technology players. In particular, this increasing electrification will have a profound impact on the powertrain ̵[ads1]2; a critical assembly of components that creates power from the engine and delivers it to the wheels, UBS analysts, led by David Lesne, wrote in a July 20 report. The traditional powertrain supply chain generates annual revenues of around 250 billion euros ($255 billion) as of 2021, according to UBS estimates, but is expected to increase to 150 billion euros by 2030 as production of battery-electric powertrains increases. Top stock ideas With powertrain electrification attracting “significant” investor attention, UBS named its “most favored” stocks to gain exposure to the theme. One of the bank’s top choices is the EV giant Tesla. The bank believes the company is likely to remain “the most successful” global EV maker, given its technology leadership and industry-leading battery supply chain management. Tesla is also poised to expand its gross margin in the coming quarters and years, while delivering 50% volume growth this year, according to UBS. The bank also likes Mercedes. It expects the automaker to “master the electric transition in a highly profitable manner.” UBS says the company’s earnings margin target of 12% to 14% is conservative, and expects further upside to the share price once the company has demonstrated competitiveness in the high-end EV segment. Read More Wall Street is convinced these stocks will do well this quarter — and Citi gives a 50% upside BofA thinks we’re already in a recession — and says these stocks have what it takes to beat it. Goldman Sachs says the bear market is not over yet, and explains why German auto parts supplier Vitesco also made UBS’s list. The bank sees the company as “one of the few winners” in powertrain electrification, given its edge over peers and its ability to deliver the full range of EV powertrain content. The bank added that much of Vitesco’s transition from supplying traditional car manufacturers to electric car manufacturers has been completed and the company now benefits from one of the largest electrification product portfolios. Chinese battery maker Contemporary Amperex Technology (CATL) is another UBS favourite. The bank believes the company has the “capability and ambition” to strengthen its technological advantage and maintain its “outstanding competitiveness” relative to its peers. “We expect CATL to maintain its leading position in the battery industry over the next 5-10 years, supported by solid R&D,” said Lesne. UBS also likes Taiwanese electronics maker Delta Electronics, which it believes is ahead of peers in EV exposure given its strong product and customer portfolio. The bank estimates that sales of electric cars will account for more than 10% of the company’s sales in 2025, up from today’s 5% to 6%. EV outlook In a research note issued last month, UBS said it expects 2026 to be an “inflection point” for electric vehicles, when the global electric market will surpass the combined market size of personal computers, smartphones and servers. “On our forecasts, production growth for internal combustion engines will be broadly stable until it peaks in 2024, then decline by an average of 15% annually until 2030. Meanwhile, the number [battery electric vehicles] produced should grow sixfold over 2021-30,” UBS added in its July 20 report.
