Investing in the Electric Vehicle Ecosystem: A Better Play than Automakers
Investors have been captivated by EV automakers like Tesla, BYD, and BMW this year. However, one investment analyst suggests that a more lucrative approach to the electric vehicle theme is to invest in the broader ecosystem. Steven Glass, managing director and investment analyst at Australia-based Pella Funds, explains that while they previously owned BMW, the issue with pure EV companies is their lack of profitability and cash flow generation at present. Despite Tesla's year-to-date stock surge of around 90% and its inclusion in the "Magnificent Seven" group of stocks, only 21 out of 49 analysts covering the stock give it a buy or overweight rating, according to FactSet.
Glass, speaking on November 29, remains optimistic about Tesla but highlights its slower growth rate. He attributes this deceleration to a market slowdown, with EV unit sales growing by 49% compared to the previous year's 69% growth rate. Glass also criticizes other automakers like Ford, General Motors, and Chrysler for their failure to introduce more affordable EVs.
Against this backdrop, Glass shifts his focus to companies in the industrial metals space, particularly those involved in lithium production, a key component of EV batteries. He highlights Albemarle as one of the companies on his radar, although he cautions against immediate investment due to the company's current valuation and the decline in the lithium space. Glass expects Albemarle to become a more attractive investment once cathode makers, which rely on lithium, rebuild their inventory levels.
Additionally, Glass expresses interest in French energy technology company Schneider Electric. With the anticipated increase in EVs, he believes there will be a need for improved electronic electricity networks, and Schneider Electric is positioned to benefit from this demand. Year-to-date, shares in Schneider Electric have risen by approximately 30%, and over 60% of analysts covering the stock give it a buy or overweight rating on FactSet.
In conclusion, Glass's investment strategy focuses on the wider electric vehicle ecosystem rather than individual automakers. By exploring opportunities in the industrial metals sector and energy technology companies, investors can potentially capitalize on the growing EV market in the long term.
Looking Beyond Automakers: The Potential Impact on New Business Formation
While EV automakers such as Tesla, BYD, and BMW have been the focal point for investors, one investment analyst, Steven Glass, suggests a shift in focus. He advocates for investing in the broader ecosystem surrounding electric vehicles, rather than concentrating solely on automakers. This perspective could have significant implications for new business formations.
The Profitability Challenge of EV Automakers
Glass points out that many pure EV companies, despite their popularity among investors, are currently struggling with profitability and cash flow generation. This observation could serve as a cautionary note for new businesses considering entering the EV manufacturing space. The challenges faced by established players like Tesla could be even more daunting for startups.
Opportunities in the Wider Ecosystem
Glass's focus on the broader EV ecosystem rather than individual automakers presents an interesting perspective for new businesses. His interest in companies involved in lithium production, a key component of EV batteries, and in energy technology companies like Schneider Electric, underscores the potential opportunities in these sectors. New businesses could leverage these insights to identify and capitalize on gaps in the market.
Long-Term Investment Strategy
Ultimately, Glass's investment strategy emphasizes long-term plays in the EV market. His approach could serve as a valuable framework for new businesses, encouraging them to look beyond the immediate appeal of EV manufacturing and consider the wider ecosystem. By doing so, they could identify unique opportunities and carve out a niche in the burgeoning EV market.