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4 Auto Stocks to Watch as the Shift to EVs Intensifies

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The year 2020 turned out to be stellar for electric vehicles (“EVs”) despite the challenges faced by the automotive industry as a whole due to the outbreak of the COVID-19 pandemic. Per the Global EV Outlook 2021 issued by the International Energy Agency (“IEA”), the global electric car stock increased 43% over 2019 with global electric car sales shares rising 70% to close at a record 4.6% in 2020.

So, why have EVs become so popular? Well, one of the main reasons behind this is the rising focus on climate change. As we strive to ensure a sustainable future, EVs have taken center stage, at least when it comes to an eco-friendly form of transport. EVs have become the go-to option for reducing the carbon dioxide emission that is characteristic of internal combustion engine vehicles.

The major automotive manufacturers have been upping their EV game in recent times and the competition is no longer restricted to pure-play EV manufacturers. Several legacy automakers have entered the EV market with new offerings and are also planning more investments, to meet the ever-increasing demand for this eco-friendly alternative. Per a Reuters article, General Motors Company (GM - Free Report) announced that it is going to increase its spending on EVs through 2025 to $35 billion, marking an increase of 75% from March 2020.

A reason that had primarily kept buyers away from EVs was their high price tag. The situation has been improving there too, with EV prices falling steadily through the years, closing the gap with their gas-powered counterparts. In fact, analysts at Morgan Stanley have predicted that EVs “will likely cost $3,000-$5,000 at some point in the future,” as cited in a Business Insider article. Long-term operating costs of EVs are also lower with Energysage.com stating in a report last year that in the United States, operating a gasoline-powered vehicle costs $1,117 per year on an average compared to an average of $485 for EVs.

Governments have also been providing incentives to bolster demand for EVs. Toward that end, the IEA’s Global EV Outlook 2021 stated that government spending around the world marked an increase of 25% year over year in 2020, with $14 billion expended toward “direct purchase incentives and tax deductions for electric cars.” In the United States, President Joe Biden has pledged to reduce greenhouse gas emissions by at least 50% by 2030. The President has also proposed an infrastructure deal and per a Detroit News article published on Jul 6, the framework agreed upon by the White House and the bipartisan group of lawmakers included $7.5 billion for building EV charging infrastructure and $7.5 billion for electric buses and other forms of transport. President Biden has also pushed for recycling of EV batteries as another Reuters article published on Jun 4 stated that the his strategy is set to include bolstering the domestic recycling of batteries for reusing lithium and other metals.

Reflective of the positive developments that EVs have been witnessing, it is no surprise that the EV market is expected to grow going forward. According to a report by Markets and Markets, the global EV market size is estimated to witness a CAGR of 26.8% from 2021 to 2030.

4 Stocks to Keep an Eye On

The demand for EVs looks set to increase in the near term as the world continues to search for a sustainable future. This seems then a good time to look at companies offering EVs that stand to benefit from this potential. We have selected four such stocks that carry a Zacks Rank #1 (Strong Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ford Motor Company (F - Free Report) has been benefiting from the rising demand of EVs and in June, the company saw its electric and hybrid vehicle sales increasing 117% in the United States. It sold 12,975 units of its Mustang Mach-E SUV till June this year. The company is also set to launch the electric version of its F-150 pickup in 2022.

Ford currently flaunts a Zacks Rank #1 and year to date its stock has risen 58.3%. The Zacks Consensus Estimate for its current-year earnings increased 30.5% over the past 60 days. The company’s expected earnings growth rate for the current year is more than 100%.

General Motors saw its EV sales rising in second-quarter 2021 with its Chevrolet Bolt EV reporting record deliveries for the second quarter and the first half of the year.

The company currently has a Zacks Rank #1 and the stock is up 34.9% year to date. The Zacks Consensus Estimate for its current-year earnings increased 25.1% over the past 60 days. The company’s expected earnings growth rate for the current year is 35.1%.

Honda Motor Co., Ltd. (HMC - Free Report) is also gearing up its EV offering and recently announced that it is targeting 100% EV sales in North America by 2040. It is also planning to make its own EV architecture after its two vehicles made in partnership with General Motors, namely Honda Prologue and an all-electric Acura SUV, go on sale in North America by 2024.

Honda currently has a Zacks Rank #3 and the stock has risen 11.6% year to date. The Zacks Consensus Estimate for its next-year earnings increased 4.3% over the past 60 days. The company’s expected earnings growth rate for next year is 21.2%.

Toyota Motor Corporation (TM - Free Report) recently unveiled its plan of releasing 15 new battery EVs by 2025 that will include seven new battery EV models of its “beyond Zero” series. The company also offers hybrid models like Corolla Hybrid and Camry Hybrid.

Toyota currently has a Zacks Rank #3 and year to date its stock price has increased 15.2%. The Zacks Consensus Estimate for its current-year earnings increased 7.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 15.6%.