Our theme of EV Supplier stocks has been a mixed performer this year, rising by about 4% year-to-date, compared to the S&P 500 which has gained over 17% over the same time frame. This follows a difficult 2022, which saw the theme decline by 21%. Now the macro-environment has actually been somewhat favorable for technology and futuristic stocks, with inflation cooling, and the Federal Reserve scaling back on its pace of interest rate hikes. Things have also been strong on the EV adoption front. For example, in the U.S. battery electric vehicle sales rose 57% year-over-year in Q2 2023, per Counterpoint, with sales accounting for about 7% of overall auto shipments in the country. That said, there have been challenges as well. Earlier this month, the United Auto Workers went on strike, marking the first time workers at all three big Detroit auto companies – Ford, General Motors, and Stellantis – have gone on strike at the same time. This is likely to hurt automotive production and the broader ecosystem in the near term. Separately, price cuts in the EV space by bellwether Tesla over the last two quarters have triggered a price war of sorts, particularly in the sizable Chinese EV market. This could be weighing on supplier stocks to an extent, as lower selling prices could mean more stringent component cost management on the part of OEMs.
Interestingly, Albemarle has had a Sharpe Ratio of 0.4 since early 2017, lower than the 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
That said, the longer-term outlook remains intact for the theme with Counterpoint research projecting that global EV sales will stand at 17 million units in 2023. The longer-term picture also looks promising. The total light vehicle market stood at about 90 million units prior to Covid-19. It’s quite likely that the passenger vehicle market will transition almost entirely to EVs in the coming decades, providing meaningful room for expansion for EV suppliers. Within our theme, TE Connectivity stock (NYSE:TEL), a company that sells a range of connectivity and sensor solutions, has been the strongest performer, rising by about 10% year-to-date. On the other side, Albemarle stock (NYSE:ALB), a specialty chemicals manufacturing company, that is also one of the leading lithium producers, has been the weakest performer with its stock falling 20% year-to-date.
|S&P 500 Return||-2%||15%||97%|
|Trefis Reinforced Value Portfolio||-4%||26%||547%|
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 Month-to-date and year-to-date as of 9/21/2023
 Cumulative total returns since the end of 2016