Sell EV Makers And Buy Supplier Stocks In 2022?

Sell EV Makers And Buy Supplier Stocks In 2022?

Our theme of Electric Vehicle Supplier Stocks has fared well rising by about 34% in 2021, outperforming the S&P 500 which was up by about 27% over the same period. The theme also remains up by about 105% from pre-Covid levels (end of February 2020). The shift to electric vehicles has gained momentum through the Covid-19 pandemic, with pure-play EV players such as Tesla and Nio posting robust growth despite the semiconductor shortage and investors also doubling down on high-growth stocks given the low interest rate environment. The regulatory environment is also looking more conducive with the Biden Administration outlining ambitious EV investments and targets. That being said, we think electric vehicle supplier stocks could offer better risk-adjusted returns versus EV manufacturers in the medium to long run. For example, pure-play EV stocks, such as Tesla, trade at high valuation multiples and could likely see some correction as rates rise. Moreover, auto industry incumbents such as GM and Volkswagen face low barriers to entry into the EV market. On the other hand, top component suppliers should stand to benefit irrespective of which automakers eventually win the market share battle in the EV space. There is massive room to grow, as