This growth is driven by Cheaper EV products, EV performance is comparable to internal combustion engines, with extended charging infrastructure throughout China, Europe, and the United States. EV growth will create investment opportunities not only for automakers, but for several industries as well.
Investment opportunities exist beyond automakers
As the adoption of battery EVs increases, multiple industries will evolve and transform throughout the supply chain. As shown below, the EV supply chain begins with raw materials and specialty chemicals, is used to manufacture EV-specific auto parts, and eventually becomes vehicles such as batteries, auto parts, and technology parts. From there, car OEMs assemble the parts as they would in the manufacture of internal combustion engine vehicles. Although not a direct part of the supply chain, building and operating a charging infrastructure also creates opportunities.
The table below shows the companies covered by Morningstar analysts. These companies believe they are undervalued and in the right place to benefit from EV growth.
- BorgWarner manufactures motors, gearboxes, inverters, converters, battery management systems, in-vehicle chargers, and software for EVs. The company also integrates components and software into a fully integrated drive module.
- BorgWarner’s narrow Morningstar Economic Moat Rating comes from the source of the intangible moat, which derives from the continuous flow of intellectual property. The company also benefits from the source of switching costs moats.
- In 2030, BorgWarner is targeting about 45% of EV revenue, just below the 2021 estimate of 3%. As EV penetration declines, revenue is expected to grow by an average of 2-4 percent, surpassing global light vehicle production. At ICE.
DuPont de Nemours (DD).
- DuPont sells specialty polymers, materials for manufacturing battery separators, and electronic materials to automakers and suppliers throughout the EV supply chain. The company generates about 50% more revenue per EV or hybrid compared to ICE.
- Our narrow moat assessment comes from DuPont’s patented portfolio of specialty products. DuPont’s ability to continually innovate provides stable pricing power and enables companies to obtain excessive return on equity.
- DuPont invests about 4% of its sales in R & D each year, which we believe is sufficient to continue developing new premium products. As EV adoption increases, DuPont should benefit from selling more premium products to the EV supply chain.
Edison International (EIX).
- Edison’s Southern California utility is currently embarking on the expansion of the largest EV charging network in the United States. The total investment in charging networks and distribution infrastructure to support new chargers will be approximately $ 1 billion.
- As a fully regulated distributor, Edison’s area of service monopoly in Southern California and its efficient scale advantage are the main causes of narrow economic moats. California utilities regulations are mostly constructive because the state recognizes that it needs financially sound utilities that can attract capital to support its environmental goals.
- Edison plans to spend US $ 16 billion on power distribution and transmission upgrades in California over the next three years, equivalent to an annual asset-based growth of 7%. As EVs become more prevalent, investments in EV-related infrastructure and energy storage are expected to occupy a larger share of their growth investment.
Sociedad Químici Minera de Chile (SQM).
- SQM’s largest business is lithium production. Lithium will benefit from increased adoption of EVs, as increased demand for lithium will increase prices and profits.
- Our narrow moat assessment derives from the cost-effective production of lithium, iodine, and specialty fertilizers in SQM. SQM operates the world’s lowest cost brine-based lithium resources.
- SQM is investing more than three times in lithium capacity over the next decade, primarily through low-cost brownfield capacity expansion. Given the good outlook for EVs, we consider these investments to be value-added.
Notable stocks in the electric vehicle supply chain
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