The electric vehicle (EV) has been the dream of futurists for years. The reality is that, despite the logistics of changing an entire world to the EV model, it is probably coming sooner rather than later. After all, emissions from internal combustion engines that require gasoline are a major source of air pollution. Another huge factor is that overall energy costs are lower, and maintenance costs are as well.
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The U.S. president has set a goal for half of all new U.S. vehicle sales to be electric by 2030, while also tightening pollution standards for cars and trucks in a barrage of action aimed at reducing what many feel is the largest source of planet-heating gases in America. Last week, the White House outlined its plan to cut emissions from vehicles, with President Biden signing an executive order demanding that 50% of all new cars and trucks sold by the end of the decade be powered by electric batteries.

While that goal is extremely optimistic, and perhaps very unlikely, the adoption of the EV future is going full-speed ahead. The analysts at Jefferies think three top companies are poised to be huge winners. They noted this in a recent research report:

We believe Auto original equipment manufacturers can transition into an EV driven industry of connected products while also operating with less and better allocated capital. We think this could lead to a re-rating of Auto OEMs’ valuation multiples. Investment spending has already started to stabilize, if not decline as OEMs:

1) Increasingly re-allocate spending from internal; combustion engine vehicles to fund electric vehicles and software investment.

2) Build vertical integration for electrification partly through joint investments off the balance sheet.

3) Electric Vehicle development costs benefit from higher modularity and scale.

The analyst points out that auto inventories are at record lows; re-building them to dealer/OEM “optimal” levels in 45-60 days would add 1.3 to 2.1 million units, 8-11% of North American output, supporting pricing well into 2022 and structural change.

Jefferies thinks the stocks of these three companies are poised to benefit as well and rates them all at Buy. Remember though that no single analyst call should ever be used as a basis to buy or sell a stock.

The venerable American automaker is poised to be a big EV player, and management has rebuilt the legacy car company in recent years. Ford Motor Co. (NYSE: F) designs, manufactures, markets and services a range of Ford trucks, cars, sport utility vehicles, electrified vehicles, and Lincoln luxury vehicles worldwide.
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It operates through three segments. The Automotive segment sells Ford and Lincoln vehicles, service parts and accessories through distributors and dealers, as well as through dealerships to commercial fleet customers, daily rental car companies and governments. The Mobility segment designs and builds mobility services, and it provides self-driving systems development services.

The Ford Credit segment primarily engages in vehicle-related financing and leasing activities to and through automotive dealers. It provides retail installment sale contracts for new and used vehicles and direct financing leases for new vehicles to retail and commercial customers, such as leasing companies, government entities, daily rental companies and fleet customers.

Ford made a stunning $1.1 billion in adjusted earnings before interest and taxes for the second quarter, a big swing from the same period last year when the company reported a $1.9 billion loss. The company also reported that adjusted earnings for the full year would come in between $9 billion and $10 billion, a massive boost from its prior forecast of around $5.5 billion, and it said sales could rise as much as 30% compared to first-half volumes. These figures were not lost on the Jefferies team.

Ford, which is investing $22 billion in EVs, has announced that 40% of its vehicles will be electrified by 2030, generating excitement with the recent debut of the F-150 Lightning all-electric pickup.

The Jefferies price target for Ford stock is $17. That compares with the lower $14.98 Wall Street consensus target and Monday’s closing print of $13.75.

Lithia Motors

This stock could be a very good idea for accounts wanting to participate. Lithia Motors Inc. (NYSE: LAD) operates as an automotive retailer in the United States. The company offers new and used vehicles; vehicle financing services; warranties, insurance contracts and vehicle and theft protection services; and automotive repair and maintenance services. It also sells vehicle body and parts. As of February 19, 2021, the company operated through 210 stores. It also offers its products online through 200 websites.
Jefferies likes where the company is positioned and noted this earlier this summer:

We see Lithia Motors as best positioned in an environment of increasing EV penetration as the company’s strong history in ICE parts and service operations (10% of sales, 32% of gross profit) gives us confidence in a successful battery power electric vehicle (BEV) ramp, while simultaneously a larger share of vehicle service is likely to shift to better-capitalized franchised dealers regardless of powertrain technology. Additionally, we believe the company’s legacy store base in the rural West/ Northwest is less prone to see near-term BEV disruption from lower maintenance/ service spend, as longer travel distances and limited charging infrastructure are likely headwinds to regional BEV adoption. In “expansion markets,” in central/east and southern states, we expect LAD will continue to gain share as digital selling initiatives expand market penetration well beyond “traditional” stores’ reach.

With a current growth goal to increase revenue from $13 billion (in 2020) to $50 billion in 2025, we see Lithia Motors aggressive M&A (acquired $7.5 billion in annualized sales in the trailing 12 months) and omnichannel sales initiatives bringing operating expertise and online selling reach to a national scale, likely at the expense of smaller incumbents.

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Investors receive a 0.39% dividend. Jefferies has a $406 price target, but the consensus target is up at $455.55. Lithia Motors stock closed on Monday at $363.08.

Tesla

The obvious starting point for investors is the EV pioneer. Tesla Inc. (NASDAQ: TSLA) designs, develops, manufactures, leases and sells electric vehicles, and energy-generation and storage systems in the United States, China and elsewhere. Its Automotive segment offers electric vehicles, as well as sells automotive regulatory credits. The Energy Generation and Storage segment engages in the design, manufacture, installation, sale and leasing of solar energy generation and energy storage products, as well as related services, to residential, commercial and industrial customers and utilities.

Jefferies said this about the EV giant earlier this year:

For the past decade, Tesla has led the way in building charging infrastructure, which was particularly critical to position EVs as a true alternative to ICE vehicles in terms of range and long-distance driving. Opening the Tesla network to other brands has been a recurring topic, in the US and more recently in Germany.

Jefferies upgraded Tesla stock to Buy this week, also lifting its price target to $850 from $775. The consensus target is just $652.52, but the shares were last seen trading at $688.72.

Many expect the EV market to dominate by as early as 2035. While that is still quite a few years in the future, there is every reason to believe that timeline could speed up, especially in Europe, where some mandates are already being set, and here in the United States with the new executive orders.

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