Amphenol, BorgWarner: How Are EV Supplier Stocks Faring?

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BorgWarner

Our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – has fared well, rising by about 13% year-to-date, outperforming the stocks of EV manufacturers such as Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO) which remain down year-to-date. In comparison, the S&P 500 is up by about 12% this year. So will the outperformance continue? We think it will. While electric vehicles are the future, investing in OEMs is somewhat tricky at this juncture, considering the rich valuations of pure-play EV stocks, such as Tesla, and the relative risk that auto industry incumbents such as GM (NYSE:GM) and Volkswagen face due to the low barriers to entry into the EV market, which is seeing a slew of new entrants competing for share. Electric vehicle supplier stocks, on the other hand, should be a safer way to play the broader electrification of the auto industry, without having to pick individual OEM stocks. Within our theme of EV supplier stocks, BorgWarner (BWA), a company best known for its transmission systems, has emerged as the strongest performer with its stock rising by about 30% year-to-date. On the other side, the stock price for Amphenol (APH) a company that makes a range of EV components such as charging inlets, charge plugs, sensors, and power distribution systems, is up by just about 3% this year.

[4/12/2021]

Our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – has fared reasonably well in recent weeks. The theme is up by about 9% year-to-date, compared to the S&P 500 which is up by about 10% over the same period. The theme has also returned about 45% since the end of 2019, compared to a return of about 28% on the S&P 500.

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While EVs are no doubt the future, investing in OEMs is somewhat tricky in our view. Pure play EV names such as Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO) have grown quickly with well-received products, but their stocks look pricey after rallying by over 5x and 13x, respectively, over the last year. On the other side, automotive industry incumbents such as GM and Volkswagen are also investing large sums in electrifying their line-ups, but it is not clear that this will compensate for eventual declines in gasoline vehicle sales, as the playing field is getting more crowded. The barriers to entry into the EV market are not too high, and many new players are looking to enter the market. For example, Chinese smartphone behemoth Xiaomi plans to invest $10 billion in developing EVs. Now, total volumes in the auto market are unlikely to increase due to EVs (it could even decline as technology such as self-driving and robo taxis gain traction), meaning that competition could be more intense due to a larger number of players. Considering this, EV supplier stocks could be a relatively safe way to play the broader electrification of the auto industry.

Within our theme of EV supplier stocks, BorgWarner (BWA), a company best known for its transmission systems, has emerged as the strongest performer with its stock rising by about 20% year-to-date. On the other side, Albemarle (ALB), one of the largest producers of lithium for EV batteries, has fared the worst, with its stock remaining roughly flat year-to-date.

[3/24/2021] Volkswagen & GM Are Doubling Down On EVs, Will Suppliers Benefit? 

Our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – is up by about 4% year to date, roughly in line with the S&P 500. The theme has also returned about 40% since the end of 2019, compared to a return of about 21% on the S&P 500. While some of the stocks in our theme have corrected a bit in recent weeks, we think the long-term outlook is strong. Mainstream automakers are making big commitments of shifting to EVs quickly and this could help suppliers in the medium term. For example, last week, Volkswagen (OTC: VWAGY) outlined a plan to become the world’s largest seller of EVs by 2025 at the latest, with the intention to invest around 46 billion Euros (about $55 billion) to electrify its lineup. Separately, in late January, General Motors (NYSE:GM) – the largest U.S. automaker – announced that it would launch 30 electric models by 2025, with plans to sell only EVs by 2035. Within our theme BorgWarner (BWA) – a company best known for its transmission systems – has emerged as the strongest performer this year, rising by about 15% year-to-date. On the other side, Amphenol Corporation (APH), a company that makes electrical and fiber-optic connectors, has underperformed, declining by about 4%.

[2/25/2021] EV Supplier Stocks

Our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – has outperformed rising by 8.3% year-to-date, versus 3.6% for the S&P 500. The theme has also returned about 45% since the end of 2019, compared to a return of about 20% on the S&P 500. Within our theme, auto parts major Aptiv (APTV) has been the strongest performer this year, rising by over 16% since early January, driven by stronger than expected quarterly earnings, while Amphenol Corporation (APH), a company that makes electrical and fiber-optic connectors, has underperformed, declining by about -2% year-to-date.

So will the theme continue to outperform in the near-to-medium term? Yes, we think so for a couple of reasons. Firstly, regulations under the Biden Administration are likely to be favorable for green technologies including renewable energy and electric vehicles. Secondly, mainstream automakers are making bigger commitments to electrification, and this should drive up demand for EV suppliers. For example, in late January, General Motors – the largest U.S. automaker – announced that it would launch 30 electric models by 2025, with plans to sell only EVs by 2035. There are other market-specific factors that could help EV supplier stocks as well. With Covid-19 vaccines being rolled out, investors are hoping for a quicker economic rebound, moving money away from technology names that rallied big through the pandemic to more real-economy sectors including auto components and mining stocks. This could also help the companies in our theme.

[Updated 12/29/2020]

Our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – has fared quite well in recent weeks. Year-to-date gains for the theme are now up to 35%, versus the S&P 500 which is up by about 15% over the same period. While the recent gains are driven partly by the optimism surrounding the Covid-19 vaccines, investors are also likely looking at suppliers as a good way to play the rapidly expanding EV market without having to bet on pricey EV manufacturer stocks such as Tesla (up 7x this year) and Nio (up over 10x). Within our theme, Albemarle – the largest producer of lithium for EV batteries – has been the strongest performer, doubling year to date. The stock has rallied by over 60% over the last two months alone driven by an earnings beat and better than expected performance of its lithium business. On the other side, BorgWarner (BWA), a company best known for its transmission systems, has seen its stock decline almost -10% year-to-date, partly due to its exposure to mainstream automakers.

[Updated 10/19/2020] Why Suppliers Might Be A Better Way to Play The Electric Vehicle Market

Investing in the fast-growing electric vehicle market looks tricky at the moment. Pure-play EV stocks have rallied big this year and look overvalued. For instance, Tesla (NASDAQ:TSLA) is up 5x this year, while China’s Nio is up over 7x. On the other hand, mainstream automakers who have been slowly transitioning to electric drivetrains could face financial challenges due to the disruption caused by Covid-19. Our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – could be a good way to play the growing electric vehicle market, without having to bet on individual brands. The theme is up by about 9% year-to-date, versus the S&P 500 which is up by about 8% over the same period.  While Albemarle (ALB) is the strongest performer in the theme, up by about 30%, BorgWarner (BWA) stock is down by about -10%. Below, is a bit more about these companies and how they’ve fared so far this year.

Albemarle (ALB) is the world’s largest producer of lithium for EV batteries. Most electric vehicles are powered by lithium-based batteries and it’s likely that demand for the material will rise as EV adoption grows. The stock is up by about 30% year-to-date.

TE Connectivity (TEL) provides a range of products including connector systems, sensors, and relays for a range of industries such as automotive, aerospace, defense, and oil and gas. The company has increasingly been focusing on products for hybrid and electric vehicles. The stock is up by about 14% year-to-date.

Amphenol Corporation (APH) sells a range of components used in EVs including charging inlets, charge plugs, various sensors, and power distribution systems. The stock is up by about 7% year-to-date.

APH

Aptiv (APTV) provides a range of solutions for the auto industry, including autonomous driving technologies, safety technologies,  components, and wiring. The stock is up 4% this year.

BorgWarner (BWA) is an auto components and parts supplier best known for its manual and automatic transmissions. The company is doubling down on the EV space, producing electric motors, power transmission, and power electronics for electric vehicles. The stock is down -9.5% this year.

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