The U.S. Senate passed a $1 trillion bipartisan infrastructure bill in early August, with billions set to flow into various sectors, from more traditional areas such as roads to modern green energy initiatives. The clean energy efforts are part of a larger push within the U.S and other wealthy nations to speed up the transition away from fossil fuels throughout every corner of the economy.
The green energy age isn’t complete without electric vehicles (EVs) dominating streets and highways, and the U.S. still has miles of road to travel in order to get there.
Washington’s Focus on EVs
The White House and Washington have put a spotlight on electric vehicles as part of a longer-term greener movement. President Biden signed an EV-focused executive order in August that hopes to spur rapid adoption. The non-binding goal aims to have all-electric, hydrogen-fuel cell, and plug-in hybrid vehicles make up 50% of U.S. sales by 2030.
In order to reach this voluntary benchmark, automakers called for federal support for EV charging stations, various consumer tax incentives, and other pro-electric initiatives. Elsewhere, the Senate’s $1 trillion bill allots $7.5 billion for states and municipalities to build EV charging stations. The legislative effort also includes over $6 billion in grants for battery production, development, and recycling.
The projected funding is less than President Biden called for in March when his administration set a goal of building 500,000 public chargers by 2030. There are currently roughly 48,000 public EV charging stations and over 120,000 charging ports in the U.S., according to U.S. Department of Energy data.
These levels don’t come close to supporting rapid EV adoption. Federal, state, and local governments must work with automakers, charger technology companies, and various other stakeholders in order for EVs to start driving American automotive sales anytime soon.
Despite all of the hype, the U.S. and the world has barely scratched the EV surface. The nascent nature provides plenty of profitable investment opportunities if you know where to look...
Continued . . .
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The Current EV Market
Gasoline-powered vehicles remain by far the most popular means of transportation. Electric vehicles made up only 2% of U.S. sales last year and expanded to a little over 3% in recent months. Limited market share is part of the reason why Wall Street is excited even if the electric/hybrid space doesn’t get close to 50% market share by 2030.
Tesla proved there’s demand for EVs in the U.S. and its success on the road and in the stock market forced every established auto company to go all-in on electric. Plus, plenty of newcomers, some of which are publicly traded, are ramping up production on sleek new EVs of all shapes and sizes. It will be difficult to recreate Tesla’s meteoric run, but a few standout startups are starting to make their case.
Most major automakers plan to offer many of their current models as EVs within the next decade, while rolling out EV-only cars, SUVs, and trucks. Established auto titans, perhaps ambitiously, aim to generate upwards of 50% of global sales from EVs by 2030.
One historic firm is revamping its entire business around EVs. The company said earlier this year it aims to have 40% of its global volume be all electric by 2030 and it expects to spend more than $30 billion on electrification during this stretch. The firm’s early efforts have already paid off in terms of actual sales and its surging stock price.
Auto giants in both luxury and mass markets will start eating away at Tesla’s current dominance. There are plenty of reasons to believe this could happen somewhat quickly. A few select stocks will capture a budding corner of the EV market Tesla has little chance of controlling. The ability to meet the coming demand from commercial customers such as contractors, construction companies, police departments, and other government fleets is set to boost a few well-known companies in particular.
Where’s the Money
New light-vehicle sales in the U.S. are set to climb around 13% to reach 16.3 million in 2021. EV sales are projected to blow away the broader industry-wide expansion. For instance, global EV sales already skyrocketed over 160% in the first half of 2021 against a pandemic-hit period.
Tesla led the charge, accounting for about 14% of the global market during this stretch, but its share slipped compared to last year. A few global automakers are already in Elon Musk’s rearview mirror despite the huge head start, while smaller, highly affordable brands are dominating EV sales in China and other Asian nations.
Along with investing in pure-play electric vehicle companies, Wall Street and the industry are pouring money into the technology side of the business. This is vital since EVs rely heavily on interconnected technology, remote software updates, high-tech touch screens, and much more. One firm in September poached a former Tesla executive from Apple—which has its own EV aspirations—because EVs are closer to supercomputers on wheels than traditional cars.
EVs will also provide automakers with more consistent revenue streams, via remote monitoring, constant software updates, and other futuristic maintenance necessities. And it’s hardly just the automakers who stand to benefit. Smaller tech companies are already profiting from advanced radar navigation and more, and many are hot acquisition targets.
Batteries and Chargers
EV motors are clearly essential cogs, but high-tech batteries are perhaps the most vital components. Continued progress on the energy storage and range fronts will help determine how quickly the market can grow.
Wall Street is also laser-focused on lithium, with the commodity making a case to become a “new oil.” Lithium-ion batteries are already used in most portable consumer electronics such as smartphones, and nearly all electric vehicles run on rechargeable lithium-ion batteries.
From startups to Tesla, companies are working on next-generation battery technologies, including solid-state batteries and new cell formats. Like many cutting-edge industries, there are likely game-changing batteries coming down the pike soon that few will have imagined possible.
Alongside batteries, an EV-heavy future is only possible if consumers can drive anywhere they normally would or make that same big road trip, without needing to plan their route around chargers. EV chargers are often classified in three categories: Level 1, Level 2, and Level 3 or DC fast chargers. The first two are common for home-based charging, while the fittingly named Level 3 fast chargers require as much as $100,000 or more per station in upfront capital.
There are over 100 EV charging companies in North America alone. Firms able to create faster chargers that mimic speeds closer to filling up a tank of gas will be surefire superstars, while companies able to roll out the most chargers, akin to gas stations, could become stable green energy players for decades.
5 Stocks to Electrify Your Portfolio
Electric vehicles and EV-related technologies are some of the most promising spaces investors can target for long-term gains. Consumers are demanding more electric options and manufacturers are rising to the occasion.
And as discussed above, the government is driving hard toward a clean energy future. The infrastructure bill passed by the Senate last month could earmark billions of dollars to make EVs even more accessible – and you might be surprised at which stocks might benefit most.
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I encourage you to check out the 5 stocks right away. The infrastructure bill could be a powerful catalyst, but these companies are strong enough to deliver significant gains on their own.
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¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.