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4 Firms That Could Profit From Electric Cars

These companies are our favorite picks for investors looking to tap into the potential of electric vehicle adoption.

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David Wang: The market underestimates the potential for electric vehicle, or EV, adoption. Bears point to high costs and low range versus internal combustion engine, or ICE, vehicles as reasons why adoption will not take off, noting that despite much fanfare and excitement, EVs still made up less than 1% of global vehicle sales in 2015. Consensus forecasts EV adoption growing to 2%-3% by 2020 and 4%-5% by 2025--just enough to meet fuel efficiency requirements.

We also see regulation as the main driver through 2020 but expect far greater adoption in subsequent years as battery technology improvements allow EVs to reach cost parity with ICEs by 2025. We forecast EV penetration of 10% by 2025, comparable to the ramp rates of similar innovations that have reached cost parity.

In absolute terms, EV sales should grow more than thirtyfold from roughly 300,000 units in 2015 to 11 million units by 2025, slightly more than the 10 million or so total vehicle sales for a top 3 global automaker. Our top picks to play higher EV adoption are lithium producer Albemarle, auto-parts supplier BorgWarner, and car-makers BMW and General Motors.

David Wang, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.