From horse, to buggy, to incredibly fuel-efficient and sophisticated gas-powered cars, to electric cars -- the transition from the internal combustion engine (ICE) to the electric motor could represent the next chapter in passenger transportation.
When it comes to investing in the electric vehicle (EV) industry, there are the usual suspects like Tesla and other automakers. There are also plenty of EV charging companies like ChargePoint Holdings that provide a catch-all way to invest in EV adoption.
But some investors may be more interested in companies that benefit from the EV industry without making it their lifeblood.
Aptiv (APTV 1.53%) makes safety and security solutions, as well as electric systems, for EV makers. European Industrial titan ABB (ABBN.Y 1.06%) has a massive electrification segment that includes EV charging, automation products, and electric systems. EVs use several times more copper than their ICE equivalents. And the Global X Copper Miners ETF (COPX 1.70%) provides an easy way to invest in the growth of copper demand.
Here's what makes all three of these investment opportunities worth considering now.
Image source: Getty Images.
Many of the world's largest EV makers rely on Aptiv
Scott Levine (Aptiv): Around the world, highways and byways are looking a lot different than they did just a few years ago. EVs are becoming increasingly apparent -- and, presumably, will continue to do so for years to come. Unsurprisingly, this has led many growth investors to park EV stocks in their portfolios. Some more conservative investors, however, are still on the side of the road, worried about the risks related to an individual EV maker. Fortunately for them, Aptiv offers an electric opportunity to gain EV exposure.
From advanced safety features to high-speed electrical systems, Aptiv offers EV makers a variety of solutions that are critical for the manufacturing of EVs. And it's not merely one or two upstart companies that Aptiv is helping to power. According to the company's recent 10-K, Aptiv includes the world's largest 25 automotive original equipment manufacturers as its customers. In 2022, for example, General Motors and Stellantis were Aptiv's two largest customers, each accounting for 9% of the company's sales; Ford and Volkswagen each accounted for 8% of its 2022 sales, while Tesla accounted for 5% of sales.
Setting its sights on providing more advanced automated driving solutions and expanding into adjacent markets, Aptiv foresees strong growth in the next seven years. In 2023, the company is targeting revenue of $40 billion. If it achieves this mark, it will mean the company will have grown revenue at a compound annual growth rate (CAGR) of 11% from the $17.5 billion in sales it reported in 2022.
Similarly, management is looking for free cash flow to race higher -- to $5 billion -- in 2030. Should Aptiv, in fact, reach this height, it will result in the company having increased free cash flow at a CAGR of 36% from 2022 to 2030.
Enabling integrated electrification
Daniel Foelber (ABB): ABB stock has quietly been crushing the market for the last few years. The stock is already up over 10% year to date and has nearly doubled over the last three years.
ABB provides one of the safest ways to invest in EV adoption. The company has four major segments -- electrification (emissions reduction, EV charging) motion (motors, generators, propulsion), process automation (control systems, analytics), and robotics and discrete automation (artificial intelligence, factory automation). Similar to conglomerates like Honeywell International, ABB is one of those companies that has its arms around just about everything in the industrial sector.
The company's e-mobility division of its electrification segment can go toe-to-toe with any pure-play EV charging company. ABB offers residential, commercial, and fleet EV charging with both AC and DC fast charging. Its prefabricated and pre-wired solutions like the EcoFlex eHouse are easy to install and hook up to the grid. ABB's biggest advantage in the EV industry is that it incorporates EV charging into its broader e-mobility offering that includes energy distribution and storage. ABB Ability can be paired with EV charging to provide data-driven insights such as preventative maintenance and efficiency improvements.
In sum, ABB's EV charging solutions fit nicely into its overall portfolio, placing the company in a prime position to land large customers that may be interested in more than just a few EV chargers.
The only real downside of ABB is that the stock price has run up and its valuation isn't as cheap as it used to be. ABB's forward P/E ratio is 34.2 -- which is far more expensive than other industrial conglomerates. But it's also a profitable and diversified company, which in many ways is better suited for risk-averse investors than buying an unprofitable EV growth stock.
ABB has done an excellent job growing its top line and boosting its operating margin. ABB's operating margin is 12.5% -- a 10-year high. ABB's growth has allowed it to buy back a ton of stock over the last few years. Since July 2022, it has bought back 286 million shares for a total value of $8.6 billion. Last Friday, ABB announced a new $1 billion buyback program, which will launch April 3.
The company's improved efficiency combined with industry leadership across several facets of the global economy makes it a high-quality stock to own over the long term.
This ETF offers diversified exposure to copper
Lee Samaha (Global X Funds-Global X Copper Miners ETF): According to the Copper Development Association, a conventional car typically uses 18 to 49 pounds of copper, compared to 85 pounds for a hybrid electric vehicle and 132 pounds for a plug-in hybrid electric vehicle. As such, the shift to EVs from ICE implies a significant increase in demand for copper.
It's a theme picked up by S&P Global's influential The Future of Copper report published in 2022. The report sees demand for copper almost doubling from 2021 to 2035, driven by EV demand, economic growth, and the electrification of everything trend.
The result is seen as a shortfall in copper as supply struggles to keep up -- implying copper prices are headed higher.
If you are sympathetic to the idea but averse to trying to pick winners within the sector, then a copper ETF like the Global X Funds-Global X Copper Miners ETF might fit the bill. The fund invests in a basket of copper miners across the globe, with no more than 6.4% in any single holding at present.
Diversifying exposure is a good idea in an industry that can be subject to significant stock-specific risk due to political and other risks. With a near 3% dividend yield, it provides a useful way to generate income too.
