Electric vehicles: betting on the right horses

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Behind Tesla (TSLA, US $ 902.94), there are many traditional manufacturers, such as Volkswagen (VOW.DE, 204.00 euros), General Motors (GM, US $ 37.91), Stellantis (STLA.MI, 12, 59 euros) and Ford (F, 14.27 $ US), has stepped on the accelerator in recent years to carve out a place in the fast-growing market for electric vehicles.

However, these companies are not the only ones willing to get their share in this profitable market. Chinese companies, such as XPeng (XPEV, US $ 25.39), BYD (BYDDY, US $ 58.00), NIO (NIO, US $ 17.50) and Li Auto (LI, US $ 22.43), and the Americans, such as Rivian (RIVN, US $ 31.74) and Lucid (LCID, US $ 19.06), also want their piece of the pie. And with good reason!

The electric vehicle market really started in 2021. Last year, 6.6 million new electric vehicles were registered worldwide, nearly 9% of total vehicle sales, according to figures from the International Energy Agency (IEA ). This is more than double the 3 million registrations listed in 2020 and triple to 2.2 million in 2019.

Commenting on IEA data, analyst firm S&P Global Platts Analytics said that while electric vehicle sales rose more than 100% year-on-year, gasoline-powered vehicles ended in 2021 when 2.8%. %. This means that almost all of the progress the automotive industry experienced last year was made thanks to electricity.

According to S&P Global Platts, the trend won’t stop there, which since February estimates sales of 26.8 million electric vehicles worldwide by 2030, a forecast 23% higher than previously, issued in June 2021..

The sector also has a good year ahead of it, as many countries keen to reduce their reliance on oil, including Canada, have very aggressive growth targets for electric car sales.

On the occasion of the opening of the Montreal Electric Vehicle Show, held from April 22 to 24, the Minister of Innovation, Science and Industry, François-Philippe Champagne, reiterated the will of the federal government, that 50% of new vehicles sold in Canada in 2030 will be electric, and 100% in 2035, when they will make up only 5.2% of sales in 2021, according to data from Statistics Canada.

It’s hard to imagine the electric car industry without mentioning the name of the world’s number one in the sector, Tesla. Daniel Ives, analyst at Wedbush, believes the company founded by Elon Musk should be in any portfolio betting on the electrification of cars. “The biggest mistake a lot of investors will make is trying to find the next Tesla,” he said. There is only one Tesla. Trying to find others is a bad strategy.

“In the long run, we’ve been very optimistic about the electric car sector. It’s a market that could reach US $ 5,000 billion in ten years. It’s the biggest turmoil in the automotive industry since the 1950s and we’re seeing these electric vehicles like we saw on the Internet in 1997, ”he said.

Investors who want to reduce the environmental footprint of their portfolio by betting on the electric vehicle industry are therefore spoiled for choice. On the other hand, to get rich by betting on the long-term growth of the industry, the most interesting options may not be where you think.

“Even if we want to make a responsible investment, the main goal of anyone who saves should be to make money. When you have companies that haven’t sold a car yet and are getting billions of dollars in an initial public offer, it can’t be maintained. for a long time, “warns Félix-A. Boudreault, managing partner at Sustainable Market Strategies and Nordis Capital, companies that specialize in responsible investing.

For example, Rivian went public at US $ 78 per share in November, reaching nearly US $ 12 billion. The initial public offering cost the company nearly US $ 67 billion. After a quick jump to over US $ 179, the stock is slowly returning to the ground and was only worth US $ 31 at the beginning of May.

Felix-A. Boudreault compared the emergence of electric vehicles to the gold rush of 1848 to 1855 in California. “At that time, the ones earning the most money were not necessarily the researchers, but the sellers of picks and shovels,” he illustrates.

In the same way, the latter specified that in the supply chain that makes an electric vehicle, there are interesting companies that supply parts, the best known of which are obviously batteries.

“Apart from batteries, there are many parts or systems that are really unique to electric vehicles that make a very specialized supplier less of a risky investment than a manufacturer if they have a lot of customers. It may not be that sexy, but there we are will put our money, ”he said, citing US-based Dana (DAN, US $ 14.84), Canadian-based Magna International (MG, 78, $ 21), French Valeo (FR). .PA, 16.98 euros) and the Japanese Denso (6902.T, 7,792 yen).

“These companies have a lot of customers. If a deal with a company like Rivian doesn’t work, that’s okay because they’re also doing business with big builders, he says. Ultimately, they’re the ones who win the race.” . ”

The Tesla model

In his opinion, Tesla has done an extraordinary job in showing that it is possible to challenge the giants of the automotive industry in a very conservative world historically. In recent years, however, major traditional manufacturers have invested heavily to catch up with Elon Musk’s company.

“The companies that will challenge Tesla are not Rivian, Lucid or Nikola, but Renault (RNO.PA, 23.26 euros), General Motors, Volkswagen, Toyota (TM, US $ 169.81) and Ford,” he said.

In this group, the investor wants Volkswagen, the world’s second largest player in the sector and first in Europe, with “infinitely larger production capacity than Tesla and other concept companies”.

Felix-A. Boudreault believes that bad students are becoming rare in the industry and it is becoming difficult to recommend that investors sell securities short. “A year or two ago, before Fiat-Chrysler became Stellantis, the company didn’t take it seriously. The leaders even signed a US $ 3 billion agreement over five years to buy all of Tesla’s carbon credits, allowing the latter to declare its first earnings. Since then, however, the situation has changed significantly, “he said. According to the IEA, Stellantis will by the end of 2021 be the second largest electric car manufacturer in Europe behind Volkswagen and ahead of Tesla, and the fifth largest in world.

According to Daniel Ives, despite the rise of traditional manufacturers, Tesla will not soon lose its crown as number one in the world. “The company has just inaugurated the Giga Texas plant in Austin, whose goal is to produce 500,000 vehicles per year. The Giga Berlin factory will come with the same goal, without forgetting the increase in the production rate in Shanghai. We believe the industry will be US $ 5 trillion in size in ten years and Tesla will get half of it, “he predicted.

That would leave US $ 2,500 billion for all the other builders struggling to carve out a place in the industry.

To (re) read:

20 stocks of the electric vehicle industry to watch


Electric vehicles: diversified investments thanks to ETFs?


Something in the supply chain


20 stocks of the electric vehicle industry to watch

Electric vehicles: diversified investments thanks to ETFs?

Something in the supply chain

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