Forget the automakers: Fund manager picks 2 longer-term plays to cash in on EVs

Published Thu, Dec 7 20237:12 PM ESTUpdated Tue, Feb 13 20244:09 AM EST

Amala Balakrishner @in/amala-balakrishner @_amalabk

EV automakers like Tesla , BYD and BMW have garnered a lot of attention from investors this year. However, one investment analyst says a better way to play the electric vehicle theme is to invest in the wider ecosystem. "We like autos — we used to own BMW — but the problem with pure EV companies is there's few that are profitable and cashflow generative at the moment," Steven Glass, managing director and investment analyst at the Australia-headquartered Pella Funds told CNBC Pro, naming Tesla as one such company. Year-to-date, shares in Elon Musk's EV company are up around 90% and were trading around $240 on Dec. 7. The stock has been on the radar of many investors this year and is part of the so-called "Magnificent Seven" group of stocks, which also includes Alphabet , Amazon , Apple , Meta , Microsoft and Nvidia . However, according to FactSet, of the 49 analysts covering the stock, only 21 give it a buy or overweight rating, while another 21 have a hold rating and six have a sell rating on the stock. The analysts' average price target on Tesla is $239.39. Still, Glass — who was speaking on Nov. 29 — said he remains bullish on Tesla, but pointed out that it was "not growing as quickly." "Part of the issue is a market deceleration, for example, in the U.S. last year to October, EV unit sales grew 69% - this year it grew by 49% over the same period. So, it is still growing but there is a big deceleration" he said. Meanwhile, other automakers like Ford , General Motors and Chrysler, "have not done a good job introducing cheaper EVs," Glass said. Longer-term plays Against this backdrop, the investment analyst is shifting his focus to companies in the industrial metals space. This includes companies that produce lithium — a key component of EV batteries. "The move to EVs is going to have a huge increase in lithium," he said, naming Albermarle as one of the companies on his radar. "We look at the bigger players," Glass responded when asked how he decides what company to invest in. Shares in the U.S. lithium company have had a bumpy ride over the past few days. Year-to-date, the stock is down almost 45%. ALB 1M line Albemarle shares over the last month Of the 29 analysts covering the stock, 21 give it a buy or overweight rating with an average price target of $184.04, according to FactSet, giving it upside potential of around 55%. However, Glass cautioned: "Now is not a good time to considering investing in Albemarle as it is trading on a good valuation, following a decline in the lithium space." He added that he expects the company to become a better investment once cathode makers – which require lithium – rebuild their inventory levels. "The inventory to sales of cathode is the lowest it's ever been in living memory. So, at some point, that's going to have to flick and when it does, Albemarle is going to be a big beneficiary," he said. Elsewhere, he is looking at French energy technology company Schneider Electric . "We're going to have all these EVs so we've got to have better electronic electricity networks. Schneider makes the nuts and the bolts for these electricity network. So, it'll be a big beneficiary," Glass said. Year-to-date, shares in Schneider Electric are up around 30%. Just over 60% of analysts covering the stock give it a buy or overweight rating on FactSet.