The shift toward electric vehicles is often positioned as a slow crawl, with projections typically estimating that battery-powered cars won’t outsell conventional combustion engines until 2025 or 2030 at the earliest.
But analysts who currently consider EVs as a niche product risk the same embarrassing mistake as those who panned the original iPhone as too expensive or too different. The truth is that the electric vehicle revolution is already here, and mass adoption will happen much sooner than many think.
Our World in Data has a great analysis that has made the rounds for years in Silicon Valley circles, showing how adoption rates for new technology are increasingly compressed. For instance, the combustion engine auto took about 55 years to reach an 80% adoption rate, while the cellphone took a mere 15 years to hit the same ubiquity. Through this lens, such a long glide path for EV adoption seems incredibly pessimistic.
Just look at sales growth. At the onset of 2013, a few months after Tesla TSLA, -1.28% moved its Model S into full production, the car maker was struggling to produce a mere 20,000 vehicles annually. In 2018, electric vehicle sales topped 360,000 — with Tesla models accounting for about 192,000 of that tally. And halfway through 2019, worldwide EV sales are pacing an annual rate of roughly 530,000 vehicles.
What’s more, this massive growth happened even as EVs were incredibly expensive, and the cost structure is rapidly improving; the median sales price of a vehicle in the U.S. increased slightly last year to $36,600 while the typical price of an electric vehicle dropped more than 13% from $64,300 to $55,600.
At the same time, performance is getting much better, as the median range for EVs surged from 73 miles in 2011 to 125 miles in 2018. Charge times have also dramatically improved, with BMW, +0.51% and Porsche PAH3, -1.83% POAHY, -2.20% luxury EVs boasting a jaw-dropping 15-minute charge time to get a battery from nearly dead up to 80% — blowing away Tesla’s already impressive pace of about 30 minutes. If you don’t need that much juice, a mere three minutes of BMW and Porche’s fast-charging can get you 60 miles of range.
Still think EVs are just expensive playthings for tech nerds? Then consider that according to Tesla, 69% of trade-ins for its mass-market Model 3 were “non-premium” vehicles — meaning regular folks simply buying a car that just happened to be battery powered.
As an investor, you should be in this trend — and looking beyond a fashionable play like Tesla or banking on a major auto maker to dominate this still-evolving industry.
Here are four ways to play the rise of electric vehicles:
Buy automotive power component stocks
Much like when early adopters cracked open early smartphones and get a taste for which suppliers were making the components, EV investors should consider which companies are supplying auto makers with their power solutions.
One of the leading names in this category is Dublin-based Aptiv APTV, -1.99%, a company formed in part out of the shell of bankrupt auto supplier Delphi. Key components include the charging ports, high voltage connectors, shielding, sealing and everything in between. Aptiv has forecast roughly 5% revenue growth for next year, but earnings are seen jumping 12%.
Another option is France’s Valeo FR, -4.18% VLEEY, -5.37%, which is deeply connected to key European auto makers. However, it trades in the U.S. on the pink sheets on relatively low volume so it may not be as easy to trade or follow as Aptiv.
Admittedly, original equipment manufacturers (OEMs) like these tend to have more uncertainty thanks to bigger debt loads and lower margins. But like electronics suppliers, they can offer less volatility in the long run since they don’t have to worry about an individual product being a smash hit with consumers.
In other words, whether Tesla remains dominant or not, stocks like Aptiv and Valeo will still have a crucial place in the EV industry.
Buy the batteries
The battery is perhaps the most obvious and crucial part of electric vehicles, and is where most of the cost and performance comes from. So why not cut to the chase and buy one of the largest lithium battery producers in the world via Panasonic? 6752, -0.76% PCRFY, -3.02%
While you may be familiar with its consumer electronics, Panasonic is a huge player in battery technologies — and has been since 2010. Most recently, this includes a partnership with Tesla to produce the batteries for its more affordable Model 3 line. This is only part of its appeal, however, since Panasonic also has invested heavily in Chinese battery operations to tap into that growing market as well as the mainly North American market served by Tesla.
Yes, this Japanese stock trades on the pink sheets in the U.S., but volumes typically top 100,000 shares daily so it’s liquid enough to buy into. And while dividends are a bit irregular quarter-to-quarter, the stock yields about 3.5% based on the last 12 months of payouts. That’s a nice incentive for investors who want a long-term stake in the EV revolution.
A more aggressive play would be China’s BYD 1211, 4.18% BYDDF, +9.99%, another one of the world’s top battery producers and one most closer to the Chinese market. But this stock is much harder for Western investors to have visibility into.
Buy the lithium
Of course, you could go one step back in the supply chain to invest in the lithium that goes into batteries. That way, it doesn’t matter who the supplier is — it only matters whether the vehicle is powered by a battery.
Admittedly, the share prices of lithium miners have taken a significant hit on share prices over the last year or two. But while $6 billion giant Albelmarle ALB, +0.05% is trading for half what it did at its 2017 peak, this North Carolina company is comfortably profitable and now attractively valued with a single-digit price-to-earnings ratio based on next year’s forecast. Furthermore, it yields a decent 2.4% dividend that is less than 25% of earnings. That sets a firm foundation ripe for future increases that buy-and-hold investors can tap into.
Sociedad Química y Minera de Chile SQM, +0.19%, the other leading lithium miner, is also worth a look, with a bigger dividend of around 4.3%. But over the last 12 months it has paid out more in dividends than it has forecast in earnings per share, so it could be a riskier proposition.
Buy it all
If you like the idea of looking beyond individual auto makers but can’t get excited about lithium, batteries or power solutions, then consider a diversified play across the entire sector via an exchange-traded fund.
There aren’t any funds purely focused on EVs, but there are a few that gather up emerging trends in the automobile market, such as the Global X Autonomous & Electric Vehicles ETF DRIV, -0.85%. While it holds stocks that deal in EV components and critical battery materials such as lithium and cobalt, there is also a large helping of big tech firms like Alphabet GOOG, -0.16% GOOGL, -0.25% that are investing in self-driving technologies as well as legacy auto makers like Toyota Motor 7203, -1.71% TM, -1.95% that are still very much stuck in the old structure of gas-powered car sales.
Keep in mind the inception date of this fund is a little more than a year ago, so it is young and still has relatively modest assets under management.
A little bit older and a little big larger is the KraneShares Electric Vehicles & Future Mobility ETF KARS, +0.89%, with a different list of top holdings but a similar makeup. Legacy auto stocks including General Motors GM, -3.05% and tech stocks like chip maker Nvidia NVDA, +0.28% are in the mix.