Demand for electric vehicles is expected to boom in the coming decades – and UBS has set a theme for investors to tap into that electricity. UBS said the increasing amounts of electronic content inside vehicles will lead to new supply chains, as automakers work directly with semiconductor companies and new technology players. In particular, this electric surge will have a profound effect on the powertrain — an important assembly of components that generate power from the engine and deliver it to the wheels, UBS analysts led by David Leesen wrote in a July 20 report. The traditional powertrain supply chain generates annual revenues of about 250 billion euros ($255 billion) as of 2021, UBS estimates, but is expected to gain 150 billion euros in subsidies by 2030 as production of electric motors for batteries increases. Top Stock Ideas With powertrain electrification attracting the attention of “big” investors, UBS named its “most favored” stock to gain exposure to the topic. One of the bank’s top picks is electric car giant Tesla. The bank believes it is likely to remain the “most successful” company in the global electric vehicle industry, given its technology leadership and industry-best battery supply chain management. Tesla is also poised to expand its gross margin in the coming quarters and years, with volume growth of 50% this year, according to UBS. The bank also loves Mercedes. You expect the automaker to “master the electric shift in a very profitable way.” UBS says the company’s target margin of 12% to 14% is conservative, and expects its share price to rise further once the company proves competitive in the high-end electric vehicle segment. Read more Wall Street Convinced These Stocks Will Do Well This Quarter – Gives Citi a 50% Upside Bank of America Thinks We’re Already in a Recession – Says These Stocks Have What It Takes to Beat It Goldman Sachs Says The Bear Market Isn’t Over It’s up until now, and he explains why German auto parts company Vitesco has been put on the UBS list. The bank sees the company as “one of the few winners” in powertrain electrification, due to its ingenuity compared to its peers, and its ability to provide a full range of electric powertrain content. Much of Vitesco’s transition from supplying traditional automakers to electric vehicle manufacturers has been completed and the company is now benefiting from one of the largest portfolios of electric products, the bank added. Contemporary Chinese battery manufacturer Amperex Technology (CATL) is another UBS favorite. The bank believes the company has the “ability and ambition” to advance its technological edge and maintain its “distinguished competitive edge” over its peers. “We expect CATL to maintain its leading position in the battery industry over the next five to 10 years, backed by strong research and development,” said Lissen. UBS also likes Taiwanese electronics manufacturer Delta Electronics, which it believes outperforms its peers in exposure to electric vehicles, given the strength of its products and customer group. The bank estimates that electric vehicle sales will make up more than 10% of the company’s sales in 2025, up from the current 5% to 6%. An overview of electric vehicles In a research note released last month, UBS said it expects 2026 to be an “inflection point” for electric vehicles, when the global electric vehicle market will outpace the combined market size of personal computers, smartphones and servers. “According to our projections, the production growth of internal combustion engines will be broadly stable until it peaks in 2024, and then declines at an average annual rate of 15% until 2030. Meanwhile, the number of [battery electric vehicles] Production should grow sixfold during 2021-30,” UBS added in its July 20 report.
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