With EV Sales Strong Despite A Weak Economy, Are Supplier Stocks A Buy?

APTV: Aptiv logo
APTV
Aptiv

Our theme of EV Supplier stocks has underperformed this year, declining by about 24% year-to-date, compared to the S&P 500 which remains down by about 21% over the same period. While rising bond yields have largely been responsible for the sell-off in high-multiple, futuristic stocks, there are also growing concerns about the U.S. economy with GDP contracting over the last two quarters. Moreover, the U.S. government recently revisited its incentive structure for electric vehicles following the passage of the Inflation Reduction Act. Under the new rules, tax credits will apply only to EVs under a certain price limit (up to $55,000 for sedans and $80,000 for SUVs and trucks) with individuals with a taxable income above $150,000 not eligible for the credits. Consumer spending has also been slowing, with people spending more on services such as travel and leisure while scaling back on retail spending. For perspective, even Apple’s latest iPhones are seeing weaker than expected demand.

However, we aren’t really seeing demand in the electric vehicle industry being impacted by these issues. Per Cleantechnica global plugin vehicle registrations rose 60% year-over-year in August 2022 approaching 850,000. While the likes of China BYD and Tesla continue to dominate the market, mainstream U.S. automakers such as GM are also gaining some traction. There remains considerable growth potential for the EV industry as the total light vehicle market stood at about 90 million units in 2019, before the Covid-19-related disruptions hit, with EVs accounting for a single-digit percentage of overall automotive sales over the last two years. It’s very likely that the passenger vehicle market will transition almost entirely to EVs in the coming decades, providing considerable room for growth for EV suppliers. There is also a lot of deal-making activity going on in the EV supplier space, as automotive companies look to secure supplies of batteries and related materials to ensure a smooth transition.

Within our theme Albemarle stock, (NYSE:ALB), a chemicals company that is also one of the world’s largest producers of lithium, a key raw material for electric vehicle batteries, has been the strongest performer, rising by about 20% year-to-date. On the other side, Aptiv stock, (NYSE:APTV), a company that provides a range of solutions for the auto industry, including autonomous driving technologies, safety technologies, components, and wiring, has been the weakest performer, declining by about 47% year-to-date.

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What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 APTV Return 13% -47% 31%
 S&P 500 Return 6% -20% 69%
 Trefis Multi-Strategy Portfolio 8% -21% 214%

[1] Month-to-date and year-to-date as of 10/5/2022
[2] Cumulative total returns since the end of 2016

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