Demand for electric vehicles is expected to boom in the coming decades — and UBS has identified a theme for investors to cash in on that electrification. UBS said that increasing amounts of electronic content within vehicles will lead to new supply chains, as automakers increasingly work directly with semiconductor firms and new tech players. In particular, this rising electrification will have a profound impact on the powertrain — a critical assembly of components that creates power from the engine and delivers it to the wheels, UBS’ analysts, led by David Lesne, wrote in a Jul. 20 report. The traditional powertrain supply chain generates annual revenues of around 250 billion euros ($255 billion) as of 2021, according to estimates from UBS, but is expected to get a 150-billion-euro boost by 2030 as production of battery electric powertrains ramps up. Top stock ideas With powertrain electrification attracting “substantial” investor attention, UBS named its “most favored” stocks to gain exposure to the theme. One of the bank’s top picks is EV giant Tesla . The bank believes the company is likely to remain “the most successful” global EV maker, given its technology leadership and best-in-industry battery supply chain management. Tesla is also poised to expand its gross margin in the coming quarters and years, while delivering on its 50% volume growth guidance this year, according to UBS. The bank also likes Mercedes . It expects the automaker to “master the electric transition in a highly profitable manner.” UBS says the company’s earnings margin target of 12% to 14% is conservative, and expects further upside to its share price once the company has demonstrated competitiveness in the high-end EV segment. Read more Wall Street is convinced these stocks will do well this quarter — and Citi gives one 50% upside BofA believes we’re already in a recession — and says these stocks have what it takes to beat it Goldman Sachs says the bear market isn’t over yet, and explains why German automotive parts supplier Vitesco also made UBS’ list. The bank sees the company as “one of the few winners” in powertrain electrification, given its head start relative to peers, and its ability to supply the entire spectrum of EV powertrain content. The bank added that much of Vitesco’s transition from supplying traditional automakers to EV makers has been completed and the company now benefits from one of the largest electrification product portfolios. Chinese battery manufacturer Contemporary Amperex Technology (CATL) is another UBS favorite. The bank believes the company has the “ability and ambition” to strengthen its technological edge and maintain its “outstanding competitiveness” relative to its peers. “We expect CATL to sustain its leading position in the battery industry over the next 5-10 years, backed by solid R & D,” Lesne said. UBS also likes Taiwanese electronics manufacturer Delta Electronics, which its believes is ahead of peers in EV exposure, given its strong product and customer portfolio. The bank estimates EV sales will comprise more than 10% of the company’s sales in 2025, up from the current 5% to 6%. EV outlook In a research note issued last month, UBS said it expects 2026 to be an “inflection point” for EVs, when the global EV market will surpass the combined market size of personal computers, smartphones and servers. “On our forecasts, internal combustion engine vehicle production growth will be broadly stable until it peaks in 2024, declining thereafter by an average annual 15% until 2030. Meanwhile, the number of [battery electric vehicles] produced should grow six-fold over 2021-30,” UBS added in its Jul. 20 report.
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