The automotive industry is currently undergoing radical transformation. Strict emission standards and the proposals made by a few Asian and European countries to prohibit internal combustion engines driven by fossil fuels, has prompted a number of traditional automakers across the globe to gear up for electric vehicles (EVs).
 
The present market share of EVs is paltry. Irrespective of that, automakers across the globe are pumping a huge amount of money with expectations of EVs soon becoming cheap as conventional cars. In fact, per a Bloomberg New Energy Finance report, EVs will account for 54% of new car sales by 2040.

The report also mentions that by 2025-29, in most countries EVs will be cheaper than internal combustion engine-powered vehicles. It further predicts that by 2030, the price of lithium-ion battery will plunge more than 70% and that “the real take-off for EVs will happen in the second half of the 2020s.”

Rally to EV Track

At the forefront of the revolution is Tesla, Inc. (TSLA - Free Report). Its shares have skyrocketed around 879% over the past five years. Led by CEO Elon Musk, Tesla has been instrumental in the transition to electric and renewable and sustainable energy.

Other automakers are following suit. Recently, General Motors Company (GM - Free Report), Ford Motor Company (F - Free Report) and Volvo Ab (VLVLY - Free Report) shared plans of aggressively investing in huge fleets of electric models. Only a couple of days ago, Japanese auto giant, Toyota Motor Corp. (TM - Free Report), shared its plans of popularizing electrified vehicles from 2020-2030.

This is in line with the company’s developmental strategy to launch hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs), battery electric vehicles (BEVs) and fuel-cell electric vehicles (FCEVs). Barely a day ago, German automaker, Volkswagen AG’s (VLKAY - Free Report), unit, Electrify America, disclosed its intentions of installing 2,800 electric vehicle charging stations in 17 of the largest U.S. cities by June 2019.

Beneficiaries of EV Boom

Although, all automakers will eventually have to join the EV race in the future, a few have already taken some serious steps toward this goal. In fact, from automotive manufacturers to chip makers to battery manufacturers, there are different types of companies which are likely to gain from this EV boom.

According to a report by Global Equity and Credit Research, over the next five years, demand for EVs and electric storage systems (ESS) is anticipated to grow at an annual compound rate of 20% and 10%, respectively. Lithium, aluminum, cobalt, graphite, nickel and copper are most likely to gain from this rising demand for batteries.

Stocks to Consider

We now zero in on five stocks, not only from the auto sector but also from other sectors, which are likely to gain from this optimism. We pick stocks with a market cap of more than $1 billion and a Zacks Rank of 1 or 2.

Japanese automaker Toyota is taking big strides on the EV front. With a market capitalization of $185.8 billion, the company plans to sell 5.5 million electrified vehicles by 2030, for which it is collaborating with a number of companies to develop batteries.

Additionally, by 2025, it has plans of selling dedicated electrified models or vehicles with an electrified version. Toyota is also focusing on battery reuse and recycling, for which it is promoting the usage of plug-in vehicle charging and hydrogen-refueling stations. Presently, Toyota sports a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here. Toyota has a long-term growth rate of 6.2%. Shares of the company have gained 8.7% year to date. (Looking for the Best Stocks for 2018? Be among the first to see our Top Ten Stocks for 2018 portfolio here)

Volvo, the Gothenburg, Sweden-based manufacturer of trucks, buses, construction equipment, has announced that all its vehicles launched post 2019 will be either electric or hybrid. Beginning 2019, the carmaker will only manufacture three types of vehicles — pure-electric, plug-in hybrids, and so-called mild hybrids. The mild hybrid category will combine a large battery with a small petrol engine.

Presently, Volvo sports a Zacks Rank #1. Volvo has a long-term growth rate of 15%. Shares of the company have gained 63.8% on a year-to-date basis.

Tokyo, Japan-based Honda Motor Co., Ltd. (HMC - Free Report) is engaged in developing, manufacturing, and distribution of motorcycles, automobiles, power products, and other products worldwide. Until recently, this Japanese carmaker did not focus on manufacturing EVs. However, it has changed its stance and is currently working on two EVs, both slated for a 2018 rollout. Presently, Honda has a Zacks Rank #2 (Buy). Volvo has a long-term growth rate of 3.8%. Shares of the company have gained 16.6% year to date.

Munich, Germany-based BMW AG (BAMXF - Free Report) is engaged in developing, manufacturing and selling cars and motorcycles, and spare parts and accessories worldwide. Having been backed by robust demand for its models such as i3 and 2-series plug-in hybrid Active Tourer in the Western Europe and the United States, BMW recently achieved its sales target of 100,000 electric cars this year. This Zacks Rank #2 company has a market capitalization of $60.8 billion. BMW has a long-term growth rate of 4.2%. Shares of the company have gained 9.2% year to date.

Based in Philadelphia, PA, FMC Corp. (FMC - Free Report) is a diversified chemical company that serves agricultural, industrial, environmental, and consumer markets across the globe. The company is witnessing robust demand in its Lithium unit. A significant long-term driver for the lithium business is the expected rapid adoption of lithium-ion batteries in electric vehicles.

The company is expanding its lithium hydroxide production capacity by adding 20,000 metric tons per year. This Zacks Rank #1 company has a market capitalization of $12.4 billion. FMC Corporation has a long-term growth rate of 11.3%. Shares of the company have gained 66.1%, year to date.