Expert picks: How to get into the EV boom cycle in 2021
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As 2021 arrives, Stockhead has reached out to its pool of contributing experts for their view on what they hope 2021 will bring. Today’s question is: What’s the best way to get into electric vehicle adjacent stocks in 2021 as we see adoption rise in China and Europe, and expand to other regions?
Buy a basket of ASX listed rare metals explorers/developers:
Copper is a cornerstone of the EV revolution. At the heart of the electric vehicle, copper is used throughout because of its high electrical conductivity, durability and malleability. And even more is used in charging stations and in supporting electrical grid infrastructure.
Having a broad range of commodity mining companies – such as lithium, nickel and cobalt
Exposure to EV or even the battery/storage thematic is challenging purely because of the extremely limited investment choices in the market and the maturity of those companies compared to other power, energy or mineral commodity sectors.
If you thought generation was a good thematic, there are established and proven (decade track record) listed companies you could pick over. There are funds that would give you a portfolio exposure to multiple forms of generation. But there are a suite of commodities that are likely to see their demand profile expand as battery/EV etc production grows, and the mining industry is as yet at an early stage in funding a fleet of producers to meet that demand.
And if you then look into track records to give you comfort, there are some pretty notable (literal) train smashes still being cleaned up. On ASX, we have seen IGO position itself as a multi-battery-commodity producer, and they are an established miner with a track record of project delivery. Some investors might yet want to see them complete the transition from nickel and gold miner to consolidate their non-operating investment in a lithium business.
The switch to EVs is clearly well underway, and there is a clear demand picture that stems from that. Nevertheless we have seen the equity market get a long way ahead of itself, years ago now, placing immense value on developers that were exposed to the space. So I feel that delivery of a market where suppliers are seeing a steady market for their product, and there are an established few miners that the market values according to their mine lives and cash flows, is a way off yet.
This is held back to an extent by development setbacks as end use manufacturers establish their production lines and markets, and lumpy demand that is met with surges in supply.
Broadly we believe that the sector is well over-hyped, particularly here in Australia. The local population footprint simply does not have the density of population (and is unlikely to anytime soon) to economically deploy a network of charging stations to fully support electric vehicles.
As cars get smarter and safer insurance companies are an obscure way to play the theme but we find there are often too many other moving parts in those businesses.
We do have an investment in traffic safety operator Acusensus (ASX:ACE) that is developing and deploying camera technology to monitor and fine mobile phone use by drivers. We think that’s a great play on both technology and demography.
Not in the Oracle Emerging Companies portfolio, but if someone wanted exposure to the them I’d recommend looking at Rectifier Technologies (ASX:RFT), one of the few direct exposures listed on the ASX.
The business manufactures rectifiers for electric vehicle chargers and have begun to manufacture their own chargers with a focus on “vehicle to grid” which allows power to move back and forth between the vehicle and the power grid through the charger.
Outside of what the major produce commodity wise (BHP, RIO, OZL etc), I don’t have any exposure here.
Not much choice on the ASX outside of high risk lithium plays. A couple of ETFs will give you decent exposure. ACDC, which is an ETF centred around battery technology and carries names such as Tesla, BYD, SQM, ORE etc. Gives you exposure to car/battery manufacturers + lithium producers.
The other would be FANG simply for the Tesla exposure.
Australia is a major supplier of many minerals incorporated into the production of batteries. Lithium is one-such mineral critical to the production process. ASX-listed lithium miners include Coda Minerals (ASX:COD), Orocobre (ASX:ORE), and Pilbara Minerals (ASX:PLS) will profit from increased demand for the mineral.
An interesting story in 2020 was mining minnow Piedmont Lithium (ASX:PLL), who saw a 600% increase in its stock price over a month on announcement it had signed a supply deal with Tesla for the sale of high-purity lithium ore to the EV giant.
A new trend to lookout for in the renewable energy space for 2021 is green hydrogen. Green hydrogen is produced using water and a renewable energy source, such as solar or wind, with zero greenhouse gas emissions from the production process. Hydrogen is the fuel source used for Fuel Cell Electric Vehicles (FCEV) which are currently being manufactured by most major car brands such as Toyota and Hyundai.
FCEVs have the advantage of not requiring long periods to refuel, making it a preferred option for emission-free commercial transportation.
Currently there are no ASX-listed green hydrogen projects but there are a number of projects in the pipeline which may enter the public markets in 2021.
There are a huge amount of electric vehicle stocks that are now available on the market, after Tesla and Nio Inc’s huge gains in 2020. Investors need to ensure that they dig into the fundamentals of an EV stock to understand its financials and overall demand before buying it.
However, we shouldn’t write off the more traditional names such as Volkswagen, as it’s expected that they will push into the EV sector aggressively in 2021.
Again, look to be patient and buy after individual commodity prices collapse, not before. Beware IPOs promising strong pricing, those forecasts will evaporate, along with your capital, as global volumes of supply surge.
Resources stocks with leverage to battery metals – vanadium, lithium, graphite, copper – is one way to play this. Companies with a technology/production edge such as Novonix (ASX:NVX) also offer exposure to the EV market through its battery testing facility and its PUREGraphite synthetic graphite production plant and technology.
High-quality emerging companies with a robust resource that meets end-user specifications – especially lithium and graphite – should do well, if they can demonstrate how their projects can be commercialised.
This is where the most upside is in the sector. Existing battery materials production companies will likely still find it tough going, in terms of operating margins and profitability.
We don’t have exposure as we don’t invest in resources. Just buy Tesla!
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.