EV Mania - Alternative industries that will benefit from the EV boom
Over the last several years Tesla has been in the spotlight of the electric vehicle (EV) industry. Now, looking at it from the outside-in we have more competitors entering this niche space. Due to the complex nature of electric vehicle there are various internal segments that exists with each company and what makes them all unique in their own way. You can’t just build the car, you need some form of infrastructure and integration at different levels. For example, most of retail investors only see the final product for each company, the car.
Taking a glance at the different components that go into many EV companies they can be broken down into different segments: the car itself, batteries, charging stations, autonomous navigation systems and LIDAR, and power/drive trains. Not every company builds each component from the ground up and so we have a group of alternative companies that specialize in these industries as well.
Overview
Is Tesla’s time as the market leader finished? We have some stiff competition entering the scene. Along with Tesla’s first-mover advantage they’ve also vertically integrated nearly their entire ecosystem. Should newer entrants also be doing the same or are there too many moving parts to be manufacturing electric motors and batteries, creating charging infrastructure, and modeling power-train systems.
The EV industry is set to explode to the upside. With deployment of electric vehicles expecting 10x growth from 2020 to 2030 and an expected CAGR 22% Tesla had a huge advantage being the disruptor in this space. In terms of market share they are way ahead of the game, but will they be able to maintain this lead? When it comes to EVs there is now a much broader range of (cool) brands to choose from. These include: Tesla (TSLA), Nio (NIO), Fisker (FSR), Nikola** (NKLA), Revel, Lucid, Canoo, XL Fleet, Li, XPEV, and Renault. I’m not going to break down each and every EV company, but I’ll list some of the top ones at the moment and those who are poised for success.
Batteries
The next component is batteries. The battery industry very well may be revolutionized over the next decade. Some may see this as the most important factor in the vehicle, and rightfully so, but I think there shouldn’t be too much emphasis on strictly battery duration. Does it *really* matter if your EV has 500 mile range or 600 mile range on a single charge? There’s somewhat of a tipping point where extra range is no longer needed. How many times does the every-day driver actually drive over 50 or 100 miles? There will be few expert players set to benefit from the rise in quality lithium battery demand. Two of these companies are going to be Tesla (TSLA) and QuantumScape (QS).
Charging Stations
Building an infrastructure of charging stations like Elon did is a herculean task. Some companies will build out additional stations around the outskirts of heavily-populated areas, but it is very unlikely for every company to follow with their own setup. Most of these brands will rely on one or two key players in the game and license from them. Several of the leading players here are: Tesla, Blink Charging (BLNK), Switchback (SBE), and Chargepoint (EVSE).
Key Players by Category
Cars
Tesla, Lucid (CCIV), Rivian, NIO, Xpeng Motors (XPEV)
Non-EV Companies producing competitive Electric Vehicles
Adding to this, most car companies are venturing into the EV space and now competing in the luxury EV market. This includes Audi, Porsche, Ford, Renault, Jaguar, BMW, etc.
Batteries & Fuel Cells
Tesla (TSLA): In-house batteries
QuantumScape (QS): Lithium batteries
Plug Power (PLUG): Hydrogen fuel cells
Ballard (BLDP): Fuel cells
Infrastructure & Charging
Switchback (SBE): Charging stations
Blink (BLNK): Charging stations
Chargepoint (EVSE): Charging stations
LIDAR (nav systems)
Velodyne Lidar (VLDR)
Luminar Technologies (LAZR)
Power Trains
Hyliion (HYLN): Electrified power trains
Lightning eMotors (ZEV, formerly GIK via SPAC merger): Electrified power trains
Transport Trucks
Tesla (Tesla)
BYD Company (BYD)
Daimler (DAI)
Volvo
Delivery Fleets
Chanje
Rivian (Amazon partnership)
Workhorse (WKHS)
What is TheMacroInvestor’s Take?
Lithium Miners
These have been extremely hot over the last 2 years as lithium demand picks up. Two that are on my radar, but I am waiting for a better entry on a dip are: Piedmont Lithium (PLL) and Albemarle (ALB). A lot of metal miners will have a ton of debt they are holding. The smaller the market cap the higher the bankruptcy risk will be. I generally look for miners that have the healthiest balance sheet and a legit business model.
Battery Tech, Charging, and LIDAR
I don’t know enough about the charging stations infrastructure and demand, so I won’t be investing in any of those. When it comes to battery tech I do like QS, VLDR, and LAZR. After big runs into the end of 2020 all 3 of these have reversed back to the mean (down 60-80%). I don’t mind opening a position at this entry for a long-term hold and proxy EV plays.
Car & Fleets
I’m not sure anyone on this planet can give proper valuation to Tesla, so I will leave it out. The other brands I do like in the EV space are: CCIV/Lucid Motors, Rivian (Future IPO), and maybe Workhorse (WKHS) at current level of $8.0 per share.
Conclusion
The way I see it is that the competition is already picking up in the EV space. Top players will be the breadwinners, while the rest that don’t have an outstanding product will fizzle out. Tesla is no longer the one-and-only as luxury brands are also entering the space, taking more market share. The companies that will succeed will be those that focus on a specific EV niche (luxury brand, truck/delivery fleet, etc), and the “jack of all trades, master of none” brands will fade. This is just my opinion so take it with a grain of salt.
It’s difficult to justify entering some of these names after they’ve already gone up 100% in the last year or two. Looking at a more macro level the EV industry is just getting started and there is plenty of room for growth. There will be pull-backs along the way, but the demand and trend for the industry still remains very high.