I don't doubt that electric vehicles will replace gasoline-powered vehicles in time, but it's not clear what that means for investors. We don't know if Tesla's high margins are sustainable, or if they'll come back to industry norms over time. Start-ups like Rivian have compelling products but may not be able to ramp up before incumbents catch up. Then there's the charging business that's getting crazy valuations from investors before ever proving it can make money.
What we know is that electric vehicles will increase the consumption of electricity around the world compared to the status quo, and I think it's safe to say that EV owners are more likely to install solar, EV chargers, and even energy storage in their homes compared to non-EV owners. Given those facts, NextEra Energy (NEE 1.36%) and SunPower (SPWR -8.41%) are two companies with tailwinds from electric vehicles that could last for decades.
1. NextEra Energy
There are two ways for a utility to grow. One is for electricity demand to increase, and the other is from raising prices for electricity. EVs could help both for utilities like NextEra Energy.
This chart shows that electricity consumption has historically risen slowly and steadily until a plateau that began in the late 2000s. This is when energy-efficient light bulbs, TVs, and other electronic devices became more common, which had the effect of capping electricity consumption growth even as we used electric devices more often. But you can also see that electricity prices have increased, allowing utilities to grow.
US Average Retail Price of Electricity data by YCharts Note: 1 billion kW-hrs = 1 terawatt-hr.
As EV sales increase, demand for electricity should rise as well. According to the California Energy Commission, cumulative EV sales in the U.S. are 2.6 million from 2011 through the first quarter of 2022, and quarterly sales have now topped 200,000. That's impressive, but that means that less than 1% of the 276 million registered vehicles in the U.S. are EVs.
If 10% of vehicles are electric, that would increase U.S. retail demand for electricity by 105 terawatt-hours, or about 2%, based on an Energy.gov estimate of 3.8 MWhrs/year per incremental EV. Getting to 50% consumer EVs would increase retail electricity demand by 525 terawatt-hours per year, or 14% per year.
Electric vehicles aren't going to make NextEra Energy a high-growth stock, but they don't need to. EVs can simply make this a company that can steadily grow both its regulated and unregulated businesses, and that's great for a stock trading at 17 time price-to-earnings and paying a 4.3% dividend yield.
2. SunPower
Having an electric vehicle is directly correlated with having solar panels on your roof. Studies differ, with a survey from Ausgrid in 2020 finding that 60% of EV owners had rooftop solar and 25% had a battery backup in their homes while another study found that rooftop solar owners are 66% more likely to have an EV. No matter how you slice it, EVs and rooftop solar go together.
That's good news for companies like SunPower, which install rooftop solar, energy storage, and chargers in homes across the country. The company sells these systems through either cash or loans, and also offers long-term financing.
The chart shows that SunPower's revenue and earnings have been volatile, but what I think we've seen change in the last three years is a more stable business model. Manufacturing and utility and commercial-scale project development have been spun off, leaving the company to focus on residential solar. Given the tailwinds of rising EV adoption, higher electricity prices, and improving solar technology, this company should grow and improve the bottom line.
SPWR Revenue (TTM) data by YCharts
SunPower is higher risk than a utility like NextEra Energy, but it's well positioned to grow and help adoption of EVs with its suite of home energy offerings.
Riding the EV tailwinds
These two stocks are both going to benefit from the adoption of electric vehicles, but neither are making EVs themselves. That's intentional.
The auto industry has historically been a tough business, and I don't know if EVs will change that dynamic for investors. But I do know that more EVs on the road will lead to more electricity usage and more people putting solar on their roofs to charge their vehicles. That's why NextEra Energy and SunPower are great EV stocks.
