3 Stocks to Play the Electrification of the Auto Industry

The ‘green’ economy is here, a fact of life that will impact a wide range of activities and force adjustments that, for now, are almost impossible to predict. From power generation to expansion of the recycling industry to the electrification of transportation – those are only a few of the sectors that will turn greener in the coming decades.

So, let’s talk about transportation. Specifically, let’s talk about electric vehicles, a segment which is attracting a lot of interest from, well, everyone, with what appears to be an acknowledgement that this is where the future of transport lies.

For instance, the US Postal Service has signed a 10 year, multi-billion dollar contract for production of a fleet of electric delivery trucks; Ford Motor Company, which in recent years committed $11 billion to the development of electric vehicles (EVs), has doubled that to $22 billion, and has plans to introduce electric versions of the ever-popular Mustang muscle car and F-150 pickup; GM has announced that it will cease production of gasoline vehicles by 2035.

But it’s not just the legacy automakers who will benefit from a shift – however intense – toward EVs. Smaller companies are popping up to fill niches in the overall EV market, while some legacy supply-chain names are changing their public face and turning toward electric applications. We’ve used the TipRanks platform to look up several of these companies, and to check in with Wall Street’s analysts to get a sense of the Street’s sentiment toward the EV sector. Let’s take a closer look.

GreenPower Motor (GP)

We’ll start with commercial vehicles, a segment that in many ways lends itself to electrification. Light-haul buses and trucks, used over short ranges within urban areas and easy reach of charging stations, are a logical place to start for municipal transit authorities. GreenPower Motor plays to this niche, building a line of busses which it markets to transit systems and school districts, and small- to mid-sized cargo vans for utility work. The company also produces, as its prime product, a medium-truck cab and chassis, the EV Star, which can be customized with a variety of trailer and van bodies.

In recent months, GreenPower has capitalized on the political push to expand electric vehicle use. The trend is particularly strong on the US West Coast, in part due to the Democratic Party’s ascendency in the region, and the company’s customers include the Port of Oakland, the University of California system, and Sacramento Regional Transit. The State of California has directed that all new vehicles sold in the state must be electric by 2035 – note, it’s the same target date that GM has announced – giving GreenPower, which is based in Vancouver, British Columbia, a long-term path toward potential regional customers.

GreenPower isn’t just waiting on CA, however. In May, the company announced that it had completed delivery of 5 EV Star cab-and-chassis vehicles to the Berkshire Hathaway company Forest River, a maker of motor homes and recreational vehicles. And earlier this month, GreenPower added WeDriveU, an electric transport company specializing in shuttle buses, to its customer list. WeDriveU is partnering with GreenPower to acquire EV Star shuttle vans to its transport fleet.

In its financial release for Q4 of fiscal year 2021, ending March 31, GreenPower reported a 76% year-over-year jump in revenue, from $2.49 million to $4.38 million. During the quarter, the company delivered 5 all-electric EV250 30-foot busses to LAX airport, where they will be used for shuttle operations, and sold 30 EV Star vehicles to Zeem Solutions. The company also increased production of the BEAST line of fully electric school busses and increased its overall inventory from $6.6 million in the year-ago quarter to $12.5 million.

B. Riley analyst Christopher Souther writes of GreenPower’s potentially bright future, “We expect GP to benefit from the growing number of EV programs and mandates across the federal, commercial, and other spaces in the coming months and years. At the federal level, the Biden administration’s proposed infrastructure plan includes a Clean Buses for Kids Program, which would replace 50,000 diesel transit vehicles and electrify at least 20% of the nation’s yellow school bus fleet. Currently, about 95% of the U.S.’s public school buses run on diesel fuel. On the commercial side, corporations with significant fleets continue to study the implementation of EVs, and more deals like GP’s agreement with Forest River remain potential game-changers for the company.”

Souther’s $34 price target suggests a robust 195% one-year upside, and backs up his Buy rating on the stock. (To watch Souther’s track record, click here.)

Over the past 3 months, this stock has only attracted two reviews from Wall Street’s analysts – but they are both positive, resulting in a Moderate Buy consensus rating. The average price target is $39.50, implying room for an impressive one-year growth potential of 127%. (See GreenPower’s stock analysis at TipRanks.)

Fisker (FSR)

From commercial EVs, we’ll shift gears and look at the personal car market. This is a harder reach for companies, especially smaller start-ups that are jumping into the market whole-heartedly. Fisker is busy designing and taking pre-orders on the Ocean, its custom-made fully electric SUV with a solar panel roof. The Ocean is scheduled to begin production in 4Q22.

This company is new to the public markets, having entered the NYSE through a SPAC merger back in October. The shares gained substantially after the merger transaction completed, and peaked in early March. The company hit a setback at that time, however, when it dropped its much-hyped solid-state battery program. The technology was intended to replace current lithium ion batteries with a new power storage unit of significantly reduced size and increased performance. The company had to admit, however, that development of solid-state batteries for automotive use is not practical at this time.

Despite the battery setback, Fisker has reported recent progress on the Ocean program. Development of the manufacturing facility in Graz, Austria, is on track, and the company expects to begin prototype production soon, with a capacity of 1,500 vehicles annually. As of the end of June, the company reported more than 17,000 preorders for the Ocean vehicle. With 50% of those orders coming from outside the SUV segment, the company sees a broader audience than was first anticipated.

Without a product line in production yet, Fisker’s quarterly reports are more useful as updates on the company’s progress in creating and meeting customer demand. The most recent report, for Q1, showed that Fisker remains well-funded, with $985 million in cash on hand.

In his initiation report for RBC Capital, analyst Joseph Spak believes the company represents a “compelling risk/reward.” He writes, “Fisker plans to bring BEVs to the market in a differentiated way, utilizing 3 rd-party BEV platforms and contract manufacturing. This leverages the billions of dollars the industry is pouring into market. Management’s view is that the underpinnings of a BEV are even less differentiated than ICE vehicles, so by saving capital on building out a platform and production facility, Fisker can use capital and resources to differentiate the customer experience (design, software, UX and ownership). The easiest analogy to make is to Apple, which designs its products, but has contract manufacturers assemble/produce them. The model will not be without challenges, but if successful we see scope for an asset-light, lean cost structure entity.”

Spak describes this stock as a speculative risk, but he is bullish long term, giving FSR an Outperform (i.e., a Buy) rating along with a $27 price target that indicates the possibility of a 63% one-year upside. (To watch Spak’s track record, click here.)

Wall Street has a variety of opinions for this stock, but the bulls are in control; FSR shares have a Moderate Buy consensus, based on 8 reviews that break down to 5 Buys, 2 Holds, and 1 Sell. The stock’s average target of $24.49 suggests an upside of 47% for the year ahead. (See Fisker’s stock analysis at TipRanks.)

Aptiv PLC (APTV)

Of the stocks on this list, Aptiv is the most ‘established’ name. The company has its origins in Delphi, a major name in Detroit and a part of the automotive supply chain companies that call the Motor City home. Delphi spun off its powertrain segments, and renamed its remaining branch as Aptiv. Aptiv now works on high-tech for high-end automotive applications. The company develops a range of tech platforms, including computing, networking, and software, designed to improve vehicle efficiency and safety.

Aptiv’s product portfolio includes active perception systems to enhance vehicle safety, computing systems and satellite architecture allowing for connected vehicles, and electrical distribution systems to facilitate robust high-voltage connections. The company sees great potential in these directions, estimating the market for active safety systems will reach $17 billion in 2025 and for electrification to reach $14 billion by that same year.

In the first quarter of this year, Aptiv showed $4 billion in revenue. While down from Q4, this was up almost 24% year-over-year and bettered the consensus estimates. EPS came in at $1.03, also higher than the Street’s forecast – by $0.37. Aptiv generated over $252 million in cash form operations during Q1, and finished the quarter with $5.4 billion in available liquid assets.

Looking ahead to the second quarter, Guggenheim’s 5-star analyst Ali Faghri writes, “[We] believe 2Q consensus revenue looks ~$100 mn light based on our analysis, assuming no outgrowth on a sequential basis and neutral mix. Moving down the P&L, we also believe consensus decremental margins of 23% on a sequential basis appear overly conservative, given management commentary at recent industry conferences that cost headwinds are modest and manageable. Putting this all together, we expect 2Q revenue and EPS upside versus consensus.”

Faghri’s bullishness is clear in his rating on the stock; he has upgraded his stance from Neutral to Buy, and his $184 price target implies an upside of 18% for the next 12 months. (To watch Faghri’s track record, click here.)

The analyst ratings on this stock include 11 to Buy and 2 Sell, for a Moderate Buy consensus from the Street. Shares are going for $153.15 right now, and their $167.08 average target suggests they have room to grow a modest 7% this year. (See Aptiv’s stock analysis at TipRanks.)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.