If EV Is Out, Where Is the Next Auto Hot Spot to Invest? PRISM Takes a Trip Down the Hybrid Supply Chain for Potential Stock Play Analysis.
As Tesla, Inc. (TSLA) continues to report dismal numbers and news, an ominous tone is being set for the EV market as most of the industry takes a hit. While we cannot predict if the EV market will stay or what is in store for its future, we do know that consumer sentiment has shifted to hybrid vehicles over electric. Giant automaker Ford Motor Company (F) acknowledged the shift in a recent announcement, indicating its intention to rollback EV production and expand their popular hybrid models. This shift from EV to hybrid may lead investors interested in positioning their portfolio to capitalize on what could be the next boom in preferred automotives, replacing EV as the hot trend. But where do you look to invest?
A Trip Down the Hybrid Auto Supply Chain
Hybrid automakers already exist as this is not an emerging industry or new vehicle but instead one that is being revisited and picking up in popularity. Therefore, the typical play of buying hybrid automakers may not be as exciting or as rewarding since it’s known that consumer tastes have shifted and these established companies already tout high share prices. So how can you capitalize on the potential of hybrid getting hot? Let’s look at the supply chain for suppliers who feed hybrid automakers who may be less obvious hybrid stock plays.
Hybrid Engine Component Maker
BorgWarner Inc. (BWA) is a global leader in providing innovative propulsion solutions for combustion, hybrid, and electric vehicles. The company designs and manufactures a wide range of automotive technologies, including turbochargers, transmission systems, electric propulsion systems, and thermal management solutions, worldwide. The company’s EV and hybrid products are similar which makes them fungible from an R&D perspective. This should be positive for the company if EV declines and hybrids take off. The company is expecting its 2024 eProduct sales to grow ~25%-40%. While electric vehicle companies and automakers may be taking a hit, parts companies such as BWA have a competitive advantage due to their ability to utilize some of their EV components, in the manufacture of hybrid parts, potentially reducing their downside.
While BorgWarner isn’t as obvious of a hybrid play as investing in automaker Ford, it’s still on a level that may cast a wider net of investors who know the space and therefore, have already bought in. For those looking to dive even further into lesser-known names with potential to capitalize on a hybrid boom, let’s look at BorgWarner suppliers.
Hybrid-Electric Component Supplier
BorgWarner supplier, Wolfspeed, Inc. (WOLF) is a leading provider of wide bandgap semiconductor products and solutions, specializing in silicon carbide (SiC) and gallium nitride (GaN) technologies. These technologies enable Wolfspeed to deliver high-performance power and radio frequency (RF) components for a wide range of applications, including electric and hybrid vehicles, renewable energy systems, telecommunications infrastructure, and industrial power supplies. While the company may be lesser known due to its niche semiconductor focus, those who know the space consider Wolfspeed to be a true player in the semi world. The company made recent headlines when it announced it will be a provider of Silicon Carbide devices powering the future Mercedes-Benz Electric Vehicle. The company has also announced the topping out of the world’s largest, most advanced silicon carbide facility located in Chatham County, North Carolina. If you like rabbit holes as much as we do, Cohu, Inc. (COHU) is a supplier to Wolfspeed as it provides semiconductor test equipment and services in China and the US. Recently, reporting mixed Q4 and full year results, it may still be worth keeping an eye on if investors think fundamentals are strong and it plays well with a Wolfspeed pick. It currently has a 0.67, 3-month price correlation, to WOLF, as reported by FactSet.
As new trends heat up across sectors and industries, investors looking to find hidden value rather than what is obvious should consider this supply chain exercise. One may discover companies who are correlated to trends with potential to reap the successes but are not overtly known, by the broader investor. As EV fizzles and hybrids sizzle, it’s an interesting time to watch how the automotive industry evolves and capitalize on players contributing to the success of the shifting trends.
