Countries and companies increasingly are pledging their commitment to electric vehicles (EVs), and with a very willing consumer base of buyers for the cars, sport utility vehicles and vans that will run on electricity, the prospects for the companies involved in the charging station ramp-up are very bright. In fact, charging station growth in the United States is expected to increase 30% per year until 2030.
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In a new Jefferies report, analysts led by David Kelley make the case that the EV infrastructure build-out is the key for an electric future, and by no means will that future be cheap. The report noted this when discussing the costs involved:

Upfront cost of charging hardware runs on average $3,000 per Level 2 charger and $25,000 to up to $125,000 depending on DC Fast Charge kilowatt rating. Yet, costs related to electrical grid updates, electrical installation, upgrades and charging network subscription fees can quickly compound investment while grid load limits opportunity to achieve economies of scale. We estimate capital expenditures per station of $7,500 and a range of $62,000 to +$300,000 for Level 2 & DC Fast chargers. Allotted $15 billion via the US Infrastructure plan (targeted 500,000 chargers) plus corporate, auto industry, & charging provider coordination will prove key to ramp.

Eight companies are mentioned as potential beneficiaries, and all make sense for investors looking to the future and wanting to have a stake in what could prove to be an epoch event. The analysts break out the companies in five different silos featuring those they feel are poised to benefit the most. Not all the stocks are rated Buy at Jefferies though, and it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Original Equipment Manufacturers

The obvious starting point is electric vehicle pioneer Tesla Inc. (NASDAQ: TSLA). It 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:

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 has a Hold rating and a $775 price target. The Wall Street consensus target is $652.12, but the shares closed Wednesday at $679.70 apiece.

German auto giant Volkswagen is leading the charge across Europe in the EV space. It manufactures and sells automobiles primarily in Europe, North America, South America and the Asia-Pacific.

Its Passenger Cars and Light Commercial Vehicles segment develops vehicles and engines, including light commercial vehicles. It produces and sells passenger cars and related parts. The Commercial Vehicles segment develops, produces and sells trucks and buses, and it offers parts and related services. The Power Engineering segment offers large-bore diesel engines, turbomachinery, special gear units and propulsion components. The Financial Services segment provides dealer and customer financing, leasing, banking and insurance, fleet management and mobility services.

The analysts noted this about Volkswagen:

As an outcome of the 2015 diesel settlement, VW committed to a +$2bn investment in charging infrastructure and operates Electrify America as a network of charging points built across highways and metro areas. With 2,200 fast charging points across more than 550 locations (February 2021), Electrify America is aiming for a total of 800 charging stations by the end of 2021 with approximately 3,500 charging points. VW has committed to fully own and operate the network for a period of 10 years, after which VW may, in our view, consider alternatives.

Jefferies has a Buy rating on the over-the-counter-traded shares and a €295 price target.

Amphenol Corp. (NYSE: APH) is a top pick and has remained a long-term favorite on Wall Street and at Jefferies for years. It is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors, interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable.
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While it is somewhat lesser known, TE Connectivity Ltd. (NYSE: TEL) is also a top pick at Jefferies. It is the world’s largest maker of passive electronic components (75% of sales) led by a leading share (20% to 25%) in connectors (50% of sales). The company’s biggest served markets have longer cycles, such as auto (30% of sales) and telecom equipment (19% of sales). TE Connectivity also produces components for telecom and energy networks (14% of sales) that protect/connect cabling.

The analysts noted this about the two companies’ prospects:

Connector suppliers Amphenol and TE Connectivity are each well positioned to benefit from content tied to the charger as well as the cable that connects to the vehicle. Although the number of SKUs are diverse, connectors electrically & mechanically join wires, cables, and circuit boards and play an important role in charging infrastructure given cable, resistor, and relay demands (as well as related current sensors). Buy-rated TE Connectivity is the global leader in connectors, particularly in autos (39% share), while Buy-rated Amphenol is more diversified with no one end market responsible for more than 20% share of revenue. Both suppliers should be clear beneficiaries of an EV charging ramp, including potential average selling price expansion from DC Fast Chargers, as higher voltage typically demands larger connectors. For more details on the current industry landscape, please see our latest recap of global connector sales & order data.

Jefferies has an $80 price target on Amphenol, which compares with the lower $74.64 consensus target and Wednesday’s close at $68.41 The firm has a $160 target on TE Connectivity, well above the $146.47 consensus target and latest close at $135.21 a share.

Littelfuse Inc. (NASDAQ: LFUS) is an off-the-radar play that also offers interesting upside potential. It manufactures and sells circuit protection, power control and sensing products in the Asia-Pacific, the Americas and Europe. Its Automotive segment provides blade, resettable and high-current and high-voltage fuses, as well as battery cable protectors for hybrid and electric vehicles. It offers fuses, switches, relays and power distribution modules for commercial vehicles, as well as automotive sensor products to monitor passenger compartment occupants. This segment serves original equipment manufacturers, tier-I suppliers, and parts distributors in the passenger car, heavy-duty truck, off-road vehicles material handling, agricultural, construction and other commercial vehicle end markets.

The analysts said this:

Among the supplier universe, we believe circuit protection, power control, and sensing supplier LFUS will likely be the biggest beneficiary of ramping charging build-out. As the industry leader in circuit protection, Buy-rated LFUS’ products help prevent electronics from being damaged by spikes in electrostatic discharge. Notably, LFUS is particularly well positioned in DC Fast Chargers. Although complexity, and therefore content, varies depending on charging level, we estimate LFUS’ content opportunity in a DC Fast Charger is nearly 5x the content within an EV itself. Put simply, higher voltage equates to increased circuit protection demand.

The $325 Jefferies price target is well above the $294.17 consensus target Wednesday’s closing trade was reported at $254.79 a share.

Charging Providers

Off-the-radar company ChargePoint Holdings Inc. (NYSE: CHPT) could be one of the very best ideas in the EV charging arena. It provides charging networks and charging solutions in the United States and offers a portfolio of hardware, software and services for commercial, fleet and residential customers.

Jefferies is very positive on ChargePoint:

In conjunction with today’s note, we initiate on Chargepoint with a Buy rating. As the US charging infrastructure leader, we see the company as uniquely positioned to leverage scale and integrated hardware, software, and services features to drive a +59% sales compounded annual growth rate through fiscal year 2026 (5-year). The is the dominant charging provider with 59% networked US share (70% ex-Tesla) and +5,000 customers across commercial, fleet, and residential end markets. In addition, we expect compounding same-customer hardware volumes alongside.

The analysts have set a $40 price target. The consensus target is lower at $37.50, and the stock was last seen trading at $34.74 a share.

Lithia Motors Inc. (NYSE: LAD) could be a very good idea for investors wanting to participate. It 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.
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Jefferies likes where the company is positioned:

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.

Jefferies has a Buy rating and a $406 price target. The posted consensus target is $455.55, and Wednesday’s closing share price was $343.64.

Automotive Aftermarket

It makes sense that a leading auto parts supplier would be in the mix. O’Reilly Automotive Inc. (NASDAQ: ORLY) is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. The company sells its products to both DIY and professional service provider customers.

Its product line includes new and remanufactured automotive hard parts, such as alternators, starters, fuel pumps, water pumps, brake system components, batteries, belts, hoses, temperature control, chassis parts, driveline parts and engine parts; maintenance items, such as oil, antifreeze, fluids, filters, wiper blades, lighting, engine additives and appearance products; and accessories, such as floor mats, seat covers and truck accessories.

The analysts said this:

Within the aftermarket, we see O’Reilly Automotive as best positioned in an environment of increased EV penetration given the company’s best-in-class supply chain available to service increased DIFM (do-it-for-me) service volumes. We reiterate our view that any headwinds from increased EV penetration of SAAR are unlikely to impact automotive aftermarket parts distribution in the next 5-10 years, but note that a longer-term change in the composition of the U.S. PARC will have a material impact on the industry’s growth points of service. Notably, we believe that while EVs require less maintenance than traditional ICEs, there are even more significant challenges to performing DIY (do-it-yourself) repairs on an electrified powertrain. Therefore, we see successful execution in the commercial (DIFM/do-if-for-me) segment of the industry – long a company stronghold – as key to long-term share gains, while the retail (DIY/do it-yourself) segment likely experiences more gradual secular pressures.

The Jefferies Buy rating comes with a $600 price target. That $595 consensus target also compares with Wednesday’s close at $566.21.

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These eight stocks offer investors various angles on playing the massive potential of the EV infrastructure and charging station growth. One thing is certain. It is not a question of if this will happen, and the real question is not even when, as it is underway. The biggest question remains just how fast the ramp-up will be. That may depend on how pricing for EVs, now and in the future, will be.

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