Morningstar Research (Thailand) recommends investors focus on 10 leading global companies with high potential to cash in on electric vehicle (EV) trends, as the market is expected to quadruple by 2030 thanks to falling battery costs.
Sales of EVs are projected to reach 40% of all cars this year, roughly 40 million units, excluding another 20 million hybrid cars. That represents an increase of five times from 2022 sales, Morningstar said in a research note.
Battery-powered EVs have become more common in recent years, said the firm.
"As EV sales continue to grow, China and Europe are expected to be the world's top two in both usage and sales, with the US catching up with both markets in 2030," said Morningstar.
"Although EVs are more expensive than conventional cars now, the prices are expected to drop as battery costs fall the next few years and the time for charging reduces. More charging stations should also be developed. These factors are the key drivers for EV sales, even without government subsidies to stimulate their use."
The US-based financial services company recommends stocks in the EV supply chain.
In the auto parts group, BorgWarner is suggested as it expects 48% of sales will come from EVs in 2030, up 6% from 2022.
The manufacturer of motors, gear boxes, inverters, converters, battery management systems, onboard chargers and software for EVs expects its sales to grow 2-4% and for EVs to overtake internal combustion engine cars in terms of production.
In the electronic parts group, sensor and electrical protection system supplier Sensata Technologies is recommended, with sales expected to reach US$2 billion by 2026, up from less than $500 million last year, with half of the sales coming from the automotive industry.
For lithium producers, Morningstar chooses Albemarle because its lithium production contributes up to 90% of total profits.
"Lithium will benefit from the increased use of EVs because higher demand for lithium will lead to better prices. Also, Albemarle's production comes from the lowest-cost source, while the company is investing to quadruple its lithium production capacity within 10 years," said Morningstar.
Among automakers, General Motors is the top pick as the Detroit-based manufacturer has ambitions to sell only zero-emission vehicles worldwide by 2035.
GM announced the launch of a low-priced battery electric vehicle (BEV) model, Chevrolet Equinox CUV, priced this year at $30,000, with GM planning to invest $35 million in it.
The company plans to launch 30 EV models by the end of 2025, with a production capacity of 1 million BEVs per year in North America and another million in China.
GM has a specific battery technology called Ultium that is sold to other companies such as Honda.
For the battery group, Samsung SDI, one of the world's largest EV battery manufacturers, is suggested as the company produces batteries for automotive manufacturers around the globe.
"Morningstar expects Samsung SDI sales to grow by 20% per year through 2025 and battery sales to expand up to 27% annually. However, it may not generate good returns in the long term because EV battery distributors still lack bargaining power regarding prices," Morningstar said.
In terms of EV chargers, ChargePoint, a distributor of EV charging software and accessories, is the pick as the company is expanding into Europe to tap growing sales there.
Glencore is recommended for raw materials as the company entered the EV space by producing copper, cobalt and nickel raw materials with cost advantages. However, the business is barely growing. The exception is cobalt, which is expected to grow by 40% from 2022-2025.
Celanese is the choice for speciality chemicals manufacturers as it is the largest producer of engineered materials, which are plastics used to replace metal in automobiles. Nearly half of the company's sales come from the automotive industry.
Celanese recently acquired DuPont's Mobility and Materials business to enhance its growth potential in the global automotive industry.
In the automotive semiconductors segment, Morningstar chose Infineon Technologies Group, the market leader in power semiconductors, which plays an important part in delivering energy to EV systems. More than 40% of the company's sales come from the automotive industry.
In the area of utilities, Edison International Group is recommended as the company plans to invest in the largest EV charging network in the US, with the aim of servicing up to 3 million EVs by 2030.
Edison plans to invest $6 billion per year over three years to upgrade electricity distribution and transmission grids in California to serve wider adoption of EVs in the future.