The Best And Worst Possible Outcomes From The EV Revolution


One of the hottest investment themes on Wall Street in recent years has been electric vehicles. This week, Bank of America analyst John Murphy updated his U.S. EV penetration forecasts to 7% by 2025 and 20% by 2030.

On Friday, Murphy released his latest note in a series on the EV market tipping point and discussed the positive and negative fallout from the electrification of the global auto industry.

“We would note that our list of implications is far from exhaustive, but intended to illustrate how complex a problem many companies, governments, and entities are attempting to solve for currently,” the analyst said. 

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Bull Vs. Bear Case: In a best case scenario, Murphy said falling EV costs over time will likely ultimately result in a better, lower-cost product for consumers.

Legacy automakers and suppliers will be able to transition from internal combustion engine vehicles to EVs slowly over time without having to significantly reduce jobs or take large writedowns on ICE assets and facilities, the analyst said.

Demand for EVs and components increases exponentially, creating a boom in electricity demand that can be supported by existing capacity and supply.

In a worst-case scenario, aggressive government subsidies create unnatural demand for EVs that results in significant volatility and a drop in demand once they are phased out, he said.

If natural cost parity between EVs and ICE vehicles is not reached, automakers could be forced to significantly cut jobs and take large write-offs on their existing ICE facilities, according to BofA. 

If public and private investment for EV charging does not keep pace with EV demand, the transition to EVs could be delayed by charging bottlenecks, Murphy said.

Finally, the production and manufacturing of EVs and battery cells  with electricity from coal-fired plants could have a surprisingly negative impact on the environment, the analyst said. 

How To Play It: Murphy said the most likely outcome over the next decade will be something between the two scenarios described above, but the vastly different outcomes emphasize the importance of how companies, governments and investors navigate the massive transition in coming years.

Here’s how Bank of America recommends investors play the top U.S. automakers ahead of the EV revolution:

  • Ford Motor Company F: Buy rating, $17 target.
  • General Motors Company GM: Buy rating, $80 target.
  • Tesla Inc TSLA: Neutral rating, $700 target.

Benzinga’s Take: The global transition from ICE to EVs is inevitable and is a major opportunity for investors who play the trend correctly. The major questions that remain are how long will the transition take, how much long-term growth is already priced into EV stocks and whether or not legacy automakers can maintain their dominant positions in the industry in the face of new competition from next-generation companies.

Photo courtesy of Tesla. 

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