The Biden administration is looking to ignite efforts to electrify the automotive industry, pledging to eventually phase out the U.S. government's fleet of gas-powered vehicles in favor of electric vehicles.
So far there are few details to go along with that pledge, and it seems clear that such an ambitious goal will likely take considerably longer than the four to eight years Biden will spend in the White House. But it is equally clear which direction the industry is going, and that means there are opportunities for investors.
With greenhouse gases an administration priority, expect considerable pressure in the years to come for both government and the private sector to go electric.
Here's why three Motley Fool contributors believe Hyliion Holdings (HYLN 0.68%), Ford Motor (F 1.76%), and Workhorse Group (WKHS 2.00%) are stocks worth owning if you believe Biden will make reducing tailpipe emissions a priority.
The low-cost way for commercial truckers to go green
Lou Whiteman (Hyliion): Transportation accounts for about 28% of total U.S. greenhouse gas emissions, according to the Environmental Protection Agency, and commercial trucks account for about 23% of that total. Commercial trucking is a natural sector to target in any government push to go green, and transport companies already know they need to start shifting their fleets.
It's an expensive proposition to do a wholesale replacement of an entire fleet of trucks. Hyliion is positioning itself as a lower-cost way for truckers to get into compliance.
Hyliion has two products. The first, which is already in production, turns an existing diesel tractor-trailer into a more efficient hybrid. The second is a full powertrain consisting of electric motors and both batteries and a natural gas generator to keep it running.
The powertrain is one of the more expensive parts of a truck, but an option to paint an existing fleet green instead of buying all new trucks still offers opportunities for truckers to save cash.
Hyliion is also intriguing as an investment because it is more of a design and engineering shop than a manufacturer. The company has no factory of its own, instead partnering with auto parts maker Dana to make its product and ship them directly to customers.
This isn't a cheap stock. Despite just barely getting started, Hyliion already has a market capitalization almost equal to its well-established partner Dana. Hyliion was among the automotive companies that went public in 2020 via a special purpose acquisition company (SPAC), and the stock is down more than 60% from the early fall peak in SPAC euphoria.
I'm not sure what the stock will do in the months to come, but I do believe the company's compromise solution is a long-term winner. For those able to ignore near-term volatility, the stock is an intriguing investment in an electric future.
Here's the company that really will win the government's business -- and it's still cheap
John Rosevear (Ford Motor Company): Sure, there are probably a few start-ups that will benefit directly from President Biden's plan to electrify the U.S. government's fleet. And there are more businesses -- large and small -- that will realize indirect benefits as more Americans become comfortable with the idea of electric vehicles.
But really, who's going to win most of this government-fleet business? My money is on Ford.
All you have to do is look around to see that Ford already wins a lot of business from federal, state, and local government fleets. (Have you seen a police car lately?) Fleet sales get a bad rap from auto investors, because in the bad old days, rental fleets were dumping grounds for excess production. But as any Ford executive will happily tell you, government- and commercial-fleet sales are a good, profitable business nowadays.
And it's business that Ford is well positioned to continue to win as the world moves to electric vehicles, especially in the United States. For starters, Ford will launch battery-electric versions of its huge-selling F-150 pickup and Transit van next year. Both will be made in the United States, and I expect both to be contenders for pieces of the government's electric-vehicle pie.
Beyond that? It might look like the cupboard is relatively bare, but that won't last. One lesson of history -- one that the Biden administration is surely counting on -- is that if the government makes a market, products will appear. It's a safe bet that Ford is already hard at work on other electric vehicles that government fleet managers will find compelling.
Long story short, expect Ford to compete aggressively for this business and expect it to win plenty, both from the federal government and from the state and local governments that already buy plenty of Fords.
It's OK to buy an all-or-nothing electric-vehicle start-up with no revenue, of course, as long as you keep in mind that "nothing" is a possible outcome. But I think you'd be wise to hedge those bets with this American icon that's still trading at less than 10 times its expected 2021 earnings.
A $6 billion bet on the USPS
Rich Smith (Workhorse Group): In the context of President Biden's EV push, two things seem key to me -- and two things seem propitious for shares of electric truck maker Workhorse Group.
The first is of course the president's declaration this week that he wants to replace the entire fleet of vehicles owned and operated by the federal government with electric vehicles. Media reports put the number of vehicles around 645,000, which is obviously a big deal. More than a quarter of those vehicles will be the 180,000 mail delivery trucks operated by the United States Postal Service.
Three teams of companies are currently bidding on the USPS contract: Ford and Oshkosh, who are bidding together; Michigan's Morgan Olson LLC, paired with Turkey's Karsan; and Workhorse Group. All three are vying to win a contract that should have been awarded months ago. But even with the delays, it's logical to assume that -- even if the President has not yet set a specific timeline for overhauling the federal fleet -- the USPS replacements should be among the very first contracts to be approved.
Who will win the USPS contract? That brings us to the second point: The president's "Made in America" pledge, according to the administration, is designed to "utilize America's manufacturing capabilities" and discourage companies from "importing largely foreign made products" for sale to the government. Because it has a foreign partner, this policy seems to almost by definition put Morgan Olson's bid at a disadvantage, despite its having bid a plug-in hybrid on the USPS contract.
When you consider that Ford and Oshkosh have bid a traditional internal combustion-powered truck (based on Ford's Transit van), the fact that Workhorse's truck is the only one that is both pure electric and manufactured entirely in America makes Workhorse the logical winner of the contract, and the $6 billion that comes with it.