Brokerage firm UBS has helped lift General Motors [GM] and Sunrun’s [RUN] share prices after unveiling a new research report identifying the best global green technology stocks.
UBS said General Motors, which is set to invest $27bn in electric vehicle (EV) technology over the next five years, will benefit from president Joe Biden’s $7.5bn plan to build a national EV-charging network.
The General Motors share price revved 57.8% higher from $40.51 at the close on 4 January this year to $63.92 at the close on 8 June as economies re-opened post lockdown and with buoyant hopes of increased EV spending.
Amount General Motors is set to invest in EV technology over next 5 years
The General Motors share price then fell back, as, despite the spending pledge on EV charging, there was less clarity on Biden’s other plans, such as EV subsidies and changes to EV tax credits.
The General Motors share price stood at $49.57 at the close on 24 August, the day of the UBS report, but has failed to budge, closing on 7 September at $48.72.
However, it is the long-term share price which UBS believes will begin to motor upwards as more EV charging sites give drivers the confidence to go electric.
UBS also likes auto supplier Aptiv [APTV], which it states is at “the forefront of the emerging business of high voltage components for electric vehicles”, and German semiconductor supplier Infineon Technologies [IFX.DE], which is also set to benefit from increased demand.
Chinese firm Li Auto [LI] is another pick, given its focus on premium EVs with a long-distance range. “We expect China’s EV market to grow 5x from 2020 to 2025 and believe Li Auto has the potential to capture a meaningful share.”
“We expect China’s EV market to grow 5x from 2020 to 2025 and believe Li Auto has the potential to capture a meaningful share” - UBS comments on Li Auto
The Sunrun share price dropped from $96.50 at the close on 8 January this year to $44.25 at the close on 31 August as investors turned to value from high-growth stocks because of the fear of higher interest rates.
However, UBS feels all aglow about Sunrun, believing a Biden boost will see “incremental demand” for its products. It also sees the correction in its share price as a “good entry point” for investors.
The Sunrun share price has grown from $44.41 at the close on 24 August to $45.50 at the close on 7 September.
UBS also charged into the battery sector, liking cell producer Samsung SDI [006400.KS], Japanese firm TDK [TTDKY] and also Japan’s Toray [3402.T], which is a leading carbon fibre manufacturer and “supplier of battery separator film for lithium-ion batteries, whose sales are set to grow in the coming years”.
Conviction for green shares
In the research note, titled ‘Greentech goes global’, UBS said its sector picks “will play a key role in the global energy transition and will ride a new wave of private investments, spurred on by some of the biggest green stimulus programmes the world has ever seen”.
UBS analysts highlighted that the planet was becoming warmer as carbon dioxide emissions have accelerated since the mid-20th century, warning “COVID-19 might only be a foretaste of the kind of economic shocks and supply-chain disruptions that could be triggered by a climate crisis”. The note also said of renewable energy firms such as Sunrun: “We expect these companies to outperform global equities due to superior growth potential driven by green investments.”
“We expect these companies to outperform global equities due to superior growth potential driven by green investments” - UBS analysts on renewable energy firms
President Biden’s $1trn infrastructure plan is at the heart of the green tech investment theme in the US. Aside from its support of EV charging, it has a goal for the US to get 80% of its power from clean energy by 2030.
In early August, Biden signed an executive order setting a target that 50% of all new vehicles sold in the US in 2030 would be zero-emission.
China is aiming for carbon neutrality by 2060 and to reach peak emissions by 2030, meaning an increase in solar and wind capacity, removing fossil fuel-related projects from green bond portfolios and ramping up the use of EVs.
Biden's target of clean energy by 2030
Through its Green Deal, announced in July, the European Union has also pledged to reduce net greenhouse gas emissions by 55% from 1990 levels by 2030. This includes taxing high-carbon aviation fuel and boosting clean energy fuels such as green hydrogen.
Other analysts also see the potential of green tech. JPMorgan recently picked Shoals Technologies Group [SHLS], which produces electrical balance systems for solar energy projects. JPMorgan analyst Mark Strouse, as reported by Nasdaq, said: “Growth opportunities are abundant.”
There are challenges, however. There is still some confusion on the possibility of tax credits for solar and wind in the US, with consumer uncertainty around EVs still a barrier to adoption.
Post-pandemic investors are wary of putting their cash into tech and high-growth stocks that carry out huge project capital spending.
The iShares Global Clean Energy ETF [ICLN] is down 16.6% this year to 7 September, so perhaps not everything in the garden is green.
Growth for green tech shares
The outlook for green tech looks strong. According to a Fortune Business Insights report, the global market is set to grow at a compound annual growth rate of 20.3% by 2028 to reach $41.62bn.
Valuation of green tech market by 2028
“The world is transitioning towards greener technology to combat the problems caused by excessive pollution and harmful gases,” it stated.
Of the key stocks mentioned by UBS, Market Screener has a buy rating on General Motors and a target price of $71.87, and Sunrun has a buy rating and a target price of $76.53.
ETFs to watch that hold these stocks include the iShares Self-Driving EV & Tech ETF [DRIV], where General Motors has a 2.8% weighting as of 7 September, and the Invesco Solar ETF [TAN], where Sunrun has a 6.14% weighting.