The 4 Best Stocks to Capitalize on the Growing Shift to EVs

The electric vehicle (EV) market growth is one of the most fascinating stories being told over the last several years. While EVs still account for a small share of global vehicle sales, they have logged impressive sales growth over the last couple of years. In 2021, sales of green cars doubled year over year to hit a record of 6.6 million units. Roughly 10% of the global vehicle sales were electric last year, quadrupling from the 2019 level.

Advancement in technologies, stricter emissions and fuel-economy targets, as well as increasing commercial viability of green vehicles — both in terms of affordability and charging infrastructure — are boosting the environment-friendly EV market. To capitalize on the e-mobility future, consider holding on to Tesla TSLA, General Motors GM, Ford F and BorgWarner BWA.

EV Revolution is Finally Here

With e-mobility trends becoming hotter with each passing day, legacy auto giants have been stepping up their EV game. Even a microchip shortfall and industry challenges have not held back automakers from investing heavily in EV technology and development. In fact, companies are prioritizing resources to manufacture EV models over gas-powered traditional vehicles. Zero-emission vehicles are taking the auto industry by storm, with various new models being introduced to the market, appealing to a wide spectrum of buyers. While EV makers are getting all charged up, countries, states, and cities are also stepping up their clean energy and e-mobility targets.

The demand for electric cars is off the charts and EV sales continue to break records. Global sales of electric cars have managed to maintain momentum in 2022. Around 4.2 million battery-powered EVs and plug-in hybrids were sold worldwide in the first half of 2022, rocketing 63% from the corresponding period of 2021.

With major automakers, pure EV plays, and small as well as mid-size startups actively focusing on the development of environment-friendly vehicles, the race to EV supremacy is only going to get fiercer in the upcoming years. Per Fortune Business Insights, the global EV market is estimated to reach around $1,318 billion by 2028 from $287 billion in 2020, witnessing a CAGR of 24.3% during the 2021–2028 time frame. BloombergNEF forecasts EV vehicle sales to jump from 6.6 million units in 2021 to 20.6 million units in 2025. It estimates EVs to comprise 23% of new passenger vehicle sales globally, up from just 10% in 2021. By 2030 and 2040, BloombergNEF expects the global passenger EV market share to shoot up to 40.4% and 75.3%, respectively.

Tap the Supercharged Space With These Stocks

It goes without saying that investors get a massive opportunity to reap tremendous gains from the industry’s growth trajectory. Below we shall highlight four stocks that you should keep a close eye on if you wish to cash in on the EV euphoria. Each of these stocks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

The first name that pops into our mind is none other than Tesla. It is the poster child of the EV industry. The undisputed leader in the realm, Tesla has already established its EV operations well and is seen as the crown jewel. Tesla is the market leader in EV sales in the United States, with roughly 70% market share. Being the first mover, Tesla has had the time to create its loyal fan base.

The company’s EV catalog includes Model S, Model X, Model 3, and Model Y. The automaker is riding on the robust demand for Models 3 and Y, which form a major chunk of its total deliveries. Deliveries of Model 3/Y displayed a CAGR of more than 74% between 2019 and 2021. Over a multi-year horizon, Tesla anticipates achieving 50% average annual growth in vehicle deliveries. Production ramp-up at gigafactory 4 (in Berlin) and 5 (in Austin) and the introduction of new models, including Semi and Cybertruck, are set to support deliveries growth.

The Zacks Consensus Estimate for Tesla’s 2022 and 2023 sales indicates a year-over-year increase of 54% and 39%, respectively. Earnings are forecast to soar nearly 80% this year and another 30% next year. The company has a long-term expected EPS growth rate of 31.4%.

Investors can also count on General Motors, which is poised to become one of the darlings of the EV space in the future. It has adopted an “all-in” electrification strategy, whereby it will gain a competitive edge in batteries, software, vehicle integration, manufacturing and customer experience to make EVs the key catalyst for boosting the company’s profitability.

GM plans to roll out a whopping total of 30 brand-new EV models by the end of 2025. A few of its vital EV launches include the GMC Hummer, Cadillac Lyriq, Equinox, Silverado and Blazer. GM’s battery plants in Ohio, Tennessee and Lansing are likely to scale up its e-mobility prowess. Further, the company’s BrightDrop and Ultium Charge 360 ventures bode well for future growth. BrightDrop is aimed at offering an integrated ecosystem of electric first-to-last-mile products and its Ultium Charge 360 focuses on improving the EV charging experience.

The Zacks Consensus Estimate for General Motors’ 2022 and 2023 total revenues indicates a year-over-year increase of 22% and 3.5%, respectively. GM targets EV revenues of more than $50 billion by 2025. The company has a long-term expected EPS growth rate of 10%.

Another legacy automaker pulling out all the stops to demonstrate its EV efficiency is Ford. The U.S. auto giant is well positioned to gain a competitive edge in the EV space with its offerings, namely Mustang Mach-E, E-Transit and F-150 Lightning. It is worth noting that the automaker is America’s No. 2 EV brand, just Tesla.

Ford’s target of producing over 2 million EVs by 2026-end (representing 49% CAGR over the span of 2023-2026) augurs well for long-term growth. In one of the boldest steps taken under the leadership of CEO Jim Farley, Ford’s ambitious rejig plan to split its EV business into a separate unit within the company will unlock growth opportunities. With batteries serving as the secret sauce for EVs, Ford is fast enhancing investments in battery production. F is building twin battery plants in central Kentucky and a technologically-advanced mega campus (for vehicle and battery designing) in Tennessee.

The Zacks Consensus Estimate for Ford’s 2022 earnings and sales indicates a year-over-year increase of 23.3% and 18%, respectively. Ford expects EVs to account for half of its global sales by 2030, solidifying its stance in a booming industry. The company has a long-term expected EPS growth rate of 3%.

Investors can capitalize on the rosy EV market prospects by investing in firms that provide automakers with power solutions. In this regard, BorgWarner deserves mention. BorgWarner’s Charging Forward project to accelerate its electrification strategy bodes well. The company is likely to benefit from the soaring EV popularity and expects hybrid and electric technologies to be its major revenue drivers.

BorgWarner’s 2022 electrification revenues are expected to increase to more than $850 million, more than doubling from the 2021 level. The company is on track to achieve more than $4 billion of EV revenues by 2025, thanks to new business awards and strategic actions. BWA’s latest plan to spin off its Fuel Systems and Aftermarket business segments into a new company will enable it to better realize its electrification goals underlined in its Charging Forward strategy.

The Zacks Consensus Estimate for BorgWarner’s 2022 and 2023 sales indicates a year-over-year increase of 5% and 6.7%, respectively. Earnings are forecast to grow more than 5% this year and another 14.6% next year. The company has a long-term expected EPS growth rate of 28.5%.

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