Electric vehicle makers may be the first names that spring to mind when it comes to EV stocks, but fund manager Roderick Snell says there are other ways to play the electric car revolution. Shares of Chinese electric car makers enjoyed a strong rally last year as EV sales boomed in China, the largest automobile market in the world. But Snell, an investment manager at Baillie Gifford, said he remains "cautious" on these stocks. To be sure, Snell thinks leading Chinese EV makers like Li Auto , Nio and Xpeng have done "an amazing job" in building up a fleet of "very credible" electric vehicles in a relatively short period of time. But he believes rising competition among EV makers and legacy automakers is making it harder for investors to identify a leader. "I think it's quite difficult at this stage to identify the winners in this space, particularly with the OEMs coming in with their electric vehicles — which seem to be very good models," Snell said. "I think it's going to be a very competitive space and it's hard to identify the winners." He later explained in an email that these original equipment manufacturers, or OEMs, include the likes of homegrown traditional automakers such as Geely and Great Wall Motor . They also include foreign automakers such as Volkwagen via a joint venture with SAIC Motor , and Honda which has a joint venture with Dongfeng Motor . Snell said some of these EV stocks have "very high multiples" — an indication that the stocks could be overvalued. "I think for valuations to stack up for a number of these companies, [we will] need to assume they're going to have a 20-to-30% market share. And I think that's quite difficult at the moment," he said. Playing the EV trend Snell believes there are other ways to play the EV trend, however. "My preferred, and often cheaper, route is to invest in the supply chain — the batteries or the commodities that need to go into a number of these batteries," the fund manager said. Snell manages six portfolios including the Baillie Gifford Asia ex-Japan fund. Some of these funds have exposure to the EV supply chain. Within the materials space, Snell said the funds' biggest exposure is in nickel — a key material for EV batteries. He likes Vale Indonesia within this space, as well as Indian nickel producer Vedanta . The latter is amongst the top 10 holdings of the Baille Gifford Asia ex-Japan fund. Nickel prices have shot up, thanks to low inventories and rising EV battery consumption. Nickel prices for cash delivery was up more than 10% this year, data from the London Metal Exchange showed. Nickel prices breached $24,000 a ton on Jan. 20, the highest since August 2011. Snell also said he favors battery manufacturers. His top picks are battery behemoth Contemporary Amperex Technology (CATL) which has risen about 25.6% over the past year, as well as South Korea's Samsung SDI . He also highlighted South Korea's LG Energy Solutions, which made its trading debut on the Korean Stock Exchange late last month. Spun out of LG Chem , the firm is a supplier for Tesla , General Motors and Volkswagen , among others. The company is the world's second-largest EV battery maker with a more than 20% market share.
Electric vehicle makers may be the first names that spring to mind when it comes to EV stocks, but fund manager Roderick Snell says there are other ways to play the electric car revolution.