Investment Opportunities Multiply as the Shift to Electric and Self-Driving Vehicles Accelerates

Vijay Rakesh
Vijay Rakesh Senior Semiconductor and Automotive Technologies Equity Research Analyst
May 28, 2021

When it comes to the adoption of electric vehicles (EVs), Norway could be a harbinger for the rest of the world. EVs made up 54% of new car sales in Norway in 2020, and the country is looking to reach 100% by 2025.¹

The global push toward EVs is coming from all angles. Consumers increasingly want more climate-friendly cars, while many governments are providing tax credits or other incentives for the purchases of EVs. Wall Street is getting in on the act, funneling money to green companies due to the rising interest in sustainable investing.

For investors, the transformation of the auto industry presents a broad swath of opportunities, both among the major vehicle manufacturers and the suppliers that deliver the components essential to creating electric and autonomous vehicles.

For EV growth to continue, more charging infrastructure is needed

Tesla has been the name most associated with EVs, but a number of companies are embracing the shift away from the internal combustion engine. Volkswagen and Volvo have announced plans to sell only EVs by 2030, and GM by 2035.² Investors are cheering these moves as the stock prices of GM and Volkswagen have soared recently.³

For automakers to reach their ambitious sales goals and to meet investors’ expectations, the world needs more public charging stations for those who can’t charge their batteries at home and to facilitate longer trips. President Biden has proposed investing $15 billion to build a national network of 500,000 charging stations(4) which should accelerate the rate of adoption of EVs in the US.  

China represents a huge opportunity for EVs as it accounts for 41% of new EV global sales.(5) China is taking a different approach to solving the challenge of adequate and easy accessibility to battery charging stations, which is particularly acute in that country as over half of the population lives in apartment buildings in which charging stations aren’t feasible. China-based automaker NIO has developed an innovative “battery-as-a-service” solution, in which, for a monthly subscription fee, customers can swap out batteries when they’re running low, at local charging stations.

Investors can also consider opportunities in the trucking industry, which is investing in different types of renewable energy beyond lithium ion battery-powered EVs. Toyota Motor Company and Hyzon Motors are leading the way in developing heavy vehicles powered by hydrogen fuel cells.

Technology providers are enabling the march to self-driving cars

Today, many new cars—whether EVs or not—come equipped with Advanced Driver Assistance Systems (ADAS) that can do everything from keeping a car in its lane to parallel parking. The continuing evolution of ADAS should eventually lead to fully autonomous vehicles that require no intervention from a human driver.

Beyond the science-fiction appeal of self-driving cars, two forces are driving the development of autonomous vehicles. The first is an acute labor shortage in the trucking industry, where self-driving vehicles can help keep goods moving without human drivers. The second is safety, where despite decades of safety advancements, the number of deaths caused by car accidents remains high. Fully autonomous vehicles and ADAS promise to make driving safer.

Sensors are a critical technology powering these advancements. For example, Allegro MicroSystems has developed the next generation of sensors—giant magnetoresistance (GMR) sensors—with much faster sensing capabilities. Other firms like LeddarTech are refining radar technology known as “LIDAR”—for light radar—lasers, which are used to determine the location, movement and velocity of distant objects. Lidar already enables common ADAS features like blind spot and pedestrian detection systems, but this technology is essential to creating fully autonomous vehicles.

Other companies like Veoneer are supplying hardware and software that tie together a full suite of ADAS features. And of course, semiconductor companies, such as ON Semiconductor and NXP Semiconductors, are an essential component providing the chips that make these advancements possible.

The disruption of the auto industry is happening on multiple fronts and provides myriad ways for investors to participate, from major car companies shifting to EVs, to innovations in technology to make electric and self-driving vehicles possible, to semiconductor companies providing the digital “brains” behind all these advances.

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