EV Component Stocks Are Outperforming This Year. Should You Buy?

APTV: Aptiv logo

Our theme of EV Supplier stocks has fared relatively well this year, rising by about 8% year-to-date, compared to the S&P 500 which has declined by about 2% over the same time frame. This comes after a relatively difficult 2022, which saw the theme drop about 21%. So what’s driving the recent gains for the theme? Firstly, the macro-environment has been somewhat favorable for tech and futuristic stocks, with inflation cooling, and the Federal Reserve scaling back on the pace of its interest rate hikes. The most recent hike stood at 0.25%, down from multiple rate hikes of 0.75% last year.

Moreover, EV sales in the United States are being stimulated by the $7,500 tax credit under the Inflation Reduction Act for new electric vehicle (EV) sales to qualifying buyers. Price reductions to Tesla’s popular Model 3 and Y vehicles have also contributed to growth to an extent. China, the world’s largest EV market, also ended its zero Covid policy. This is likely to help the broader EV ecosystem – easing supply chain-related constraints and potentially helping with demand.

EV sales for 2022 stood at over 10.2 million units marking a 65% increase versus the previous year.  The forecast for the market remains strong, with Counterpoint research projecting that 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 in 2019, before Covid-19 and supply chain-related disruptions hit the automotive market. 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.

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Within our theme, Aptiv stock (NYSE:APTV) has been the strongest performer, rising by about 15% year-to-date. The company provides a range of solutions for the auto industry, including autonomous driving technologies, safety technologies, components and wiring. On the other side, Albemarle stock (NYSE:ALB), a specialty chemicals manufacturing company, which is also one of the leading lithium producers, has been the weakest performer with its stock down by 3% year-to-date.

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 Mar 2023
MTD [1]
YTD [1]
Total [2]
 APTV Return -8% 15% 59%
 S&P 500 Return -1% 2% 75%
 Trefis Multi-Strategy Portfolio -4% 3% 224%

[1] Month-to-date and year-to-date as of 3/19/2023
[2] Cumulative total returns since the end of 2016

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