Profit From The Electric Car Revolution With Suppliers

The most over-traded stock in early 2020 was Tesla (TSLA), which shot up 125% in the first six weeks of the year, fell 62% during the pandemic shutdown, then climbed 468% by the end of September. While Tesla has more substance than “tulips” or “Beanie Babies,” the continuation of its meteoric rise can be reasonably questioned. Even if Tesla represents the future of electric vehicles, much of that future has already been accounted for in its current stock price. What has not been accounted for is this: the tremendous investment opportunities that exist in the overlooked companies that are set to supply the electric car revolution for years to come.

There is an absolute treasure-trove of companies that supply Tesla and other major electric car manufacturers that investors have failed to appreciate. In this piece, we will survey some opportunities in this space.

As the Coronavirus Health Crisis continues to plague the world economy, many of these businesses have shown extremely strong momentum and outpaced the S&P 500 index by a factor of 10:

List of Key Businesses

Ticker

Name

Price

PE

Gain/Loss YTD %

300750.SZ

Contemporary Amperex Technology

209.20 CNY

104.62

+195.51%

PCRFY

Panasonic Corporation

6.8

12.49

-12.67%

1211.HK

BYD Limited

116.24

203.93

+241.4%

051910.KS

LG Chem LTd.

654,000

112.29

+208.2%

ALB

Albemarle Corporation

86.72

21.05

+19.43%

APTV

Aptiv PLC

94.05

14.32

-2.3%

SQM

Sociedad Quimica y Minera de Chile

31.53

37.18

+17.1%

BWA

BorgWarner

39.86

18.50

-9.67%

MG.TO

Magna International

46.58

-

-16.1%

TEL

TE Connectivity Ltd.

98.06

-

-1.6%

APH

Amphenol Corporation

109.30

30.47

-0.64%

IFX.DE

Infineon Technologies AG

25.94

81.82

+25.32%

ALV

Autoliv Inc.

76.63

47.50

-10.64%

ASGLY

AGC Inc.

3070 JPY

28.95

-20.26%

BRE.MI

Brembo SPA

8.75

22.22

-21.67%

     

Avg Gain:

+37.75%

     

S&P 500:

+3.65%

Source: David Huston

The Trend in Electric Car Demand

Electric car demand looks set to soar. After 40 years of struggle, and painstaking amounts of effort and research, it is nearly certain that electric cars will be populating our roads in the years and decades ahead. The rate of change is likely to go parabolic, like the replacement of horses with cars did at the start of the last century; in little more than a decade, cars went from being a rarity, to being ubiquitous on the streets of New York City. Look at what happened within 13 years:

Image

To further support that thesis, just look at this beautiful graph showing electric car deployment worldwide:

Source: IEA.org

China is leading the way, clearly, but Europe and the US are set to catch up. Electric cars are coming, and they are going to be building out infrastructure, supplier and parts manufacturing, sales, aftercare, and auto garages for the next 10-20 years.

The number of electric car models coming to market in 2020-2025 is going to triple against 2019 levels, and should make Tesla very worried as this thesis takes hold with competitors:

The “buy Tesla” trade is extremely, eye-wateringly over-bought. Tesla traded for an astounding 241x earnings in February 2020. While profitable FTSE 100 businesses trade for 10-15x earnings. Tesla has a mediocre operating margin of 4.2%, it trades for 17.6x the assets that it owns (again, astronomical valuation), and it still carries a lot of debt. Oh, and it just printed off a bunch more shares and diluted shareholder value.

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