We expect global electric vehicle sales to quadruple by 2030

Over the past two years, battery electric vehicles have seen much faster adoption than expected, and this growth can and will continue.

By 2030, we expect electric cars to account for 40% of global car sales – more than 5 times the number of electric cars sold in 2022. That means nearly 40 million cars, plus 20 million hybrid cars.

While we see the volume of electric vehicles increasing globally, adoption rates will vary from country to country: we expect China to remain the global leader in electric vehicle sales and adoption, and Europe will remain a close second. We expect the United States, which is currently lagging behind, to catch up with the global average by 2030.

While electric vehicles are still more expensive than most vehicle categories, we expect falling battery costs to drive cost parity over the next two years in the majority of vehicles. Concerns about consumer function are quickly disappearing. As electric cars reach parity with internal combustion engines, or ICEs, and charging times decline, building chargers across highways and in cities around the world will drive EV sales even without subsidies.

As growth accelerates during the second half of the decade, we see strong opportunities for investors throughout the electric vehicle supply chain.

We are more optimistic about electric vehicle adoption than consensus

Electric Vehicle Supply Chain Industry Analysis and Our Top Picks

Rising sales of battery electric vehicles will transform many industries throughout the supply chain, and the transition to electric vehicles has created opportunities throughout the EV charging value chain, which includes building EV chargers and the required supporting infrastructure.

Below, see our top picks for investing in each related industry. Although all industries will benefit from the transition to electric vehicles, we believe investors should particularly explore opportunities in automotive, electronic components and lithium suppliers.

Our top pick among automotive suppliers: BorgWarner BWA

• Morningstar rating: 5 stars
• Morningstar Economic Moat Rating: Narrow
• Fair value estimate (as of September 12, 2023): $72

BorgWarner makes motors, gearboxes, inverters, converters, battery management systems, on-board chargers and software for electric vehicles. The company also integrates components and software into a complete integrated drive unit.

BorgWarner’s narrow rating comes from a moat of intangible assets derived from a constant flow of intellectual property. The company also benefits from a switching cost source.

In 2030, BorgWarner targets about 48% of its revenue from electric vehicles, up from about 6% in 2022. We expect revenue growth to average 2 to 4 percentage points beyond light vehicle production globally as EV penetration outpaces declines in ICE.

Our top pick among electronic components: Sensata Technologies ST

• Morningstar rating: 5 stars
• Morningstar Economic Moat Rating: Narrow
• Fair value estimate (as of September 12, 2023): $71

Sensata Technologies sells electrical sensors and protection in electric vehicles. The company’s narrow economic moat stems from shifting costs to its OEM customers, as well as intangible assets in sensor design.

Sensata is targeting $2 billion in electricity revenue in 2026, up from less than $500 million in 2022. Half of that amount (more than $1 billion) comes from cars.

Our top pick among lithium producers: Albemarle ALB

• Morningstar rating: 5 stars
• Morningstar Economic Moat Rating: Narrow
• Fair value estimate (as of September 12, 2023): $350

Albemarle’s largest business is lithium production, which generates nearly 90% of profits. Lithium will benefit from increased adoption of electric vehicles as higher demand for lithium will lead to higher prices and profits.

Our narrow trench rating stems from high cost lithium production at Albemarle. Albemarle operates three of the world’s lowest-cost resources.

Albemarle is investing in expanding its lithium capacity approximately four-fold over the next decade, largely through low-cost brownfield capacity expansions. We view these investments as value accretive given our positive outlook for electric vehicles.

Our top pick among automakers: General Motors

• Morningstar rating: 5 stars
• Morningstar Economic Moat Rating: None
• Fair value estimate (as of September 12, 2023): $78

GM’s ambition is to sell only zero-emission light vehicles globally by 2035. Buick and Cadillac will move to electric-only vehicles by 2030, and it is offering one of the few affordable mass-market electric vehicles starting this year with Chevrolet The $30,000 Equinox CUV.

GM plans to invest $35 billion in developing electric vehicles and autonomous vehicles from 2020 to 2025. By the end of 2025, it intends to launch 30 electric vehicles and produce about 1 million units of battery electric vehicles annually in North America and about another million units in China. It also has its own Ultium battery technology, which it sells to other companies such as Honda.

Our top pick of batteries: Samsung SDI 006400

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Fair value estimate (as of September 12, 2023): 802,000 KRW

Samsung SDI is one of the world’s largest electric vehicle battery suppliers, with battery manufacturing sites around the world to supply automakers.

We expect Samsung SDI revenue to grow at a CAGR of 20% through 2025 largely driven by battery growth. However, we are not confident that the company will be able to generate excess revenue in the long term, as EV battery suppliers lack sufficient pricing power and maintain relationships with automakers.

We expect battery revenue to grow at a CAGR of 27%, as Samsung SDI invests heavily in building its battery manufacturing capacity.

Our top pick among electric vehicle chargers: ChargePoint CHPT

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Fair value estimate (as of September 12, 2023): $8

ChargePoint is a company that provides electric vehicle charging software and equipment across all end markets: residential, commercial, and fleets.

We set the ChargePoint to a no-ditch rating. We believe the company has upside in the Tier 2 (slow shipping) market, but less so in Tier 3 (fast shipping), where competition is intense.

ChargePoint is focused on growth across its residential, commercial and fleet end markets as electric vehicle penetration increases. The company has also expanded into Europe, which currently accounts for about 20% of revenue.

Our top choice of raw materials: Glencore GLEN

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Fair value estimate (as of September 12, 2023): GBX 510

Glencore has exposure to electric vehicles through copper, cobalt and nickel production and earnings.

We believe the company’s commodity trading and marketing operations are likely worthy of a narrow moat on their own, based on the cost advantage. However, Glencore’s mining assets on average are not worth protecting.

Glencore has been relatively disciplined in terms of capital allocation, and the growth outlook for key metals exposed to EVs has been generally flat. Cobalt is the exception and is set to grow by approximately 40% by 2025 compared to 2022 levels with production cuts that began in 2019 and Katanga mine production ramping up.

Our top pick among specialty chemicals: Celanese CE

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Fair value estimate (as of September 12, 2023): $160

Celanese is the largest producer of engineering materials, plastics often used to replace metals in cars. Nearly 50% of the company’s end-market sales go to the automotive industry, with electric vehicles giving Celanese the opportunity to sell more content per vehicle.

Celanese recently acquired the majority of DuPont’s transportation and materials portfolio, which had significant exposure to the automotive end market. After integrating the acquisition into the engineering materials sector, Celanese should be well positioned to grow from the recovery in global automobile production and the shift to electric vehicles.

Our top pick among automotive semiconductors: Infineon Technologies IFX

• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Fair value estimate (as of September 12, 2023): €47

Infineon is the market leader in power semiconductors, and these semiconductors are featured in electric vehicles to provide power throughout the vehicle system. It has several large contracts to supply EV converters with SiC vehicles. More than 40% of its revenue comes from cars overall.

Our narrow rating is based on intangible assets resulting from decades of chip design experience, as well as high customer switching costs due to costly redesigns. Infineon is well exposed to higher chip content per vehicle. We estimate that semi content in cars should rise approximately 5% faster than global light vehicle sales, thanks to content gains per vehicle, including EVs.

Our top pick among facilities: Edison International EIX

• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Fair value estimate (as of September 12, 2023): $74

Edison’s Southern California electric utility has the largest investment plan for an electric vehicle charging network among all utilities in the United States. Edison expects that nearly 3 million electric vehicles will be in its service area by 2030.

As a fully regulated distribution company, Edison’s monopoly over the Southern California service area and its advantage on the efficiency scale are the main sources of its narrow economic moat. Utility regulation in California is mostly constructive, as the state recognizes that it needs financially healthy utilities that can attract capital to support its environmental goals.

Edison plans to spend $6 billion annually over the next three years on modernizing California’s electricity distribution and transmission network, representing 7% annual growth in its asset base. As electric vehicle penetration grows, we expect investment in infrastructure related to electric vehicles and energy storage to account for a larger share of growth investments.