As popularity for electric cars continues to accelerate, so too will the intensity of competition for the largest share of the electric car market. But, rather than trying to gamble on whether the big winner will be Tesla, GM or any other automaker, investors might want to consider the main suppliers to these contestants rather than the primary contestants themselves.
Wells Fargo analyst David Lim identifies Aptiv PLC (APTV), Delphi Technologies PLC (DLPH), BorgWarner Inc. (BWA), Magna International Inc. (MGA), TE Connectivity Ltd. (TEL) and Amphenol Corporation (APH), as automaker suppliers that will all benefit from the electric vehicle boom, according to Barron’s.
Suppliers to the Auto Industry
Aptiv specializes in producing electronic safety components for auto manufacturers; Delphi designs, develops and manufactures integrated powertrain technology; BorgWarner specializes in supplying engineered systems and components for automotive powertrain applications; Magna designs, develops and manufactures automotive systems, assemblies and components; TE Connectivity provides a variety of transportation solutions including connector systems, sensors and relays; and Amphenol designs, manufactures and markets electrical and fiber optic connectors.
As suppliers to the electric car market each of these companies will benefit from the growth of that market, regardless of which of the big automakers succeed in grabbing the largest share. Thus, as investments, they provide investors an opportunity to benefit from the boom without being exposed to the idiosyncratic risks of individual automakers. (To read more, see: What types of companies are in the automotive sector besides auto manufacturers?)
Booming EV Market
While electric cars currently only account for less than 1% of global vehicle sales, that number is expected to rise to at least 10% by 2025, according to Valeo, one of the biggest suppliers to the auto industry. That baseline estimate has increased from the firm’s estimate of between 5% and 6% last year, as the car manufactures have significantly increased spending on electric vehicles in recent months.
Even more optimistic, the Swiss global financial services company, UBS, was predicting in November that global electric vehicle sales would be 16% of the total car market by 2025. In the middle of last year, investment management firm Janus Henderson was estimating was 10% by 2025. (To read more, see: Automakers Will Get a Jolt From Electric Car Sales.)
With all this growth, competition for consumers will only heat up, threatening the assumed dominance of innovative automakers like Tesla. As for that assumed dominance, Tesla has some work to do, as its share prices have stalled over the last year and looks to be currently running on fumes.