Sales of electric vehicles (EVs) are showing no sign of slowing down as momentum is expected to continue for the rest of the year, according to the International Energy Agency. These three stocks, and two ETFs, offer exposure to the EV theme.
EV companies to invest in:
- Tesla plans to licence its full self-driving technology, creating a new revenue stream.
- BYD is doubling down on its lithium mining investment.
- ChargePoint is one of the main players in the EV charging-point market in the US.
The full-self driving stock
Tesla’s [TSLA] full self-driving (FSD) system has long been contentious. Back in February, the electric car maker recalled approximately 363,000 vehicles over safety concerns. “With FSD Beta engaged, certain driving manoeuvres could potentially infringe upon local traffic laws and customs, which could increase the risk of a collision,” concluded the National Highway Traffic Safety Administration.
The rollout of FSD Beta was temporarily paused until a software update had been released, but this hasn’t deterred other automakers from wanting to install it in their own vehicles.
On Tesla’s second-quarter (Q2) 2023 earnings call at the end of July, Elon Musk hinted at plans to licence the technology. "We are in early discussions with a major original equipment manufacturer about using the Tesla FSD … so we're not trying to keep this to ourselves. We’re more than happy to licence it to others,” Musk remarked.
Licensing could be a lucrative revenue opportunity for Tesla. In reaction to the earnings call, Ark Invest analysts attributed this to the fact that “very few traditional automakers will be able to create fully autonomous vehicles and that the market will consolidate rapidly as autonomous electric transport takes hold”.
The lithium mining stock
BYD [1211.HK], China’s top-selling car brand, continued to stretch its lead over domestic rivals in July, selling 261,105 battery electric and plug-in hybrid vehicles, 18,169 of which were exported. In the same month, Li Auto [LI] shifted 34,134 units, while Nio [NIO] sold 20,462 vehicles and XPeng’s [XPEV] total deliveries were 11,008.
Warren Buffett-backed BYD is also the world’s second-largest battery maker and has plans to invest $290m in building a lithium cathode factory in northern Chile. Executive vice president Stella Li told Bloomberg last month that the company’s engineering team was conducting a feasibility study and choosing a site for the facility.
Production is expected to begin at the end of 2025 and BYD has been awarded specialised lithium producer status, meaning it can access the lithium at a preferential price for up to 11,244 metric tons of battery-grade lithium carbonate per year until 2030.
While global EV makers are rushing to lock in supplies of lithium and other raw materials, investing in mining directly should help BYD to avoid a supply crunch. The company also has a lithium iron phosphate processing facility in Brazil.
The infrastructure stock
ChargePoint [CHPT] is one of the main players in the EV charging-point market in the US, along with Blink Charging [BLNK]. In June, ChargePoint announced it would start to offer chargers with Tesla connectors. It follows a spate of EV makers deciding they’d abandon the Combined Charging System in favour of Tesla’s North American Charging Standard port.
ChargePoint’s sales aren’t spectacular — revenue was up 59% year-over-year to $130m in Q1 2024 — but its losses have been narrowing in recent quarters. Sales for Q2 2024 are expected to be $148m–$158m, a growth rate of 41% at the midway point.
The stock got a major boost at the end of May when Bank of America upgraded it to ‘buy’ from ‘neutral’. According to the bank’s analyst Alex Vrabel, ChargePoint has a clear path to profitability and should see “a cash inflection” in 2024.
As for the company’s long-term outlook, it stands to move in correlation with the wider US EV industry and the Tesla adoption. ChargePoint’s chief finance officer Rex Jackson recently told Opto Sessions: “we have a chart in our investor deck that shows the adoption of passenger vehicles in North America, and our revenue, and they correlate beautifully.”
How to invest in EV stocks
Another way to invest in EVs
ETFs, or exchange-traded funds, offer an economical and diversified way to invest in a variety of stocks within a particular theme.
The iShares Self-Driving EV and Tech ETF [IDRV] holds all three of BYD, Tesla and ChargePoint. Consumer discretionary stocks make up almost two-thirds (62.48%) of the portfolio as of 7 August. Materials and industrials account for 16.18% and 14.39% respectively. Information technology (IT) has a 6.47% weighting. The fund is up 3.8% in the six months to 8 August.
The KraneShares Electric Vehicles & Future Mobility Index ETF [KARS] also holds the three stocks. As of 30 June, consumer discretionary had the biggest weighting (43.98%), followed by materials (30.14%) and industrials (18.63%). IT (7.14%) had the smallest weighting. The fund is down 3.8% in the past six months.
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