How to participate in the coming electric vehicle (EV) boom

August 9, 2021

Electric vehicle (EV)

Global US investors

In 1905, the first petrol pump appeared in St. Louis, Missouri, to meet the fuel needs of a rapidly growing number of motorists. Before this innovation, which resembled a hand-held water pump, people filled their cars with gasoline that they had bought in cans from the pharmacy or hardware store.

It wasn’t until 1913 when the first purpose-built car gas stations appeared in cities across the United States

As of this year, there are more than 121,000 convenience stores in the country selling fuels. That number doesn’t include the tens of thousands of supermarkets, kiosk gas stations, and other places that sell fuel as well.

But not only vehicles with internal combustion engines (ICE) are on the road today. One estimate is that there are currently around 26,000 electric vehicle (EV) charging stations open to the public in the US, and if President Joe Biden gets his way, we will need many more. Five hundred thousand more, to be more precise.

Should half of all vehicle sales be electric by 2030?

Last week, Biden set a goal that by the end of the decade 50% of all vehicles sold in the US would be “battery electric, plug-in hybrid or fuel cell electric”.

It’s a big job. According to Wards Intelligence, electric vehicle sales in the United States today account for only 2.4% of all vehicle sales. Billions of dollars in investment have gone into manufacturers of electric vehicles – up to $ 28 billion in 2020 alone – and many billions more must be invested in order to achieve Biden’s goal.

By 2030, 50% of all sales are expected to be electric vehicles

USGI, Wards Intelligence

However, it is not impossible. In a joint statement following the president’s announcement, General Motors (GM) and Ford pledged to generate 40 to 50% of annual vehicle sales from electric vehicles by the end of the decade. GM believes it can achieve an “emission-free, all-electric future” by 2035. In fact, most automakers make similar promises.

A boon to metals and mining

Given this news, the question investors may be asking is how to position their portfolios. Investing in select automakers looks attractive – we’re investing in a few ourselves, including Tesla and Volkswagen – but my preferred commitment is to have the raw material manufacturers supply the metals and other materials needed to ramp up electric vehicle production.

The metals that most people think of when it comes to electric cars are lithium or copper, the latter I’ve written about many times. But it’s important not to overlook other key metals. According to BloombergNEF, global demand for nickel and aluminum could increase 14-fold, phosphorus and iron 13-fold by 2030.

The demand for silver should also benefit in the coming years. As the most conductive metal, silver is increasingly being used in almost all components of next generation vehicles, including switches, relays, breakers, fuses, and more.

Silver demand will increase in the years to come

USGI, metal focus

Choosing the right companies to invest in can be daunting. I have recommended several over the past year. We like Nano One Materials, which develops high-performance cathode materials that are used in state-of-the-art lithium-ion batteries. Standard lithium, which has projects in Arkansas and California, is up more than 550% in the past 12 months. For copper exposure, we continue to rely on Ivanhoe Mines, which last week reported that their Kamoa-Kakula concentrator facility in the Democratic Republic of the Congo entered commercial production on July 1.

One possible solution could simply be to invest in an actively managed natural resource fund that represents a diversified group of companies active in the metals and mining sectors. Take the S&P Global Natural Resources Index, which tracks 90 companies. It’s up nearly 40% over the past 12 months, and the 50-day moving average has remained above the 200-day average since last September.

The producers have increased by 40% in the last year

USGI, Bloomberg

US manufacturing and services PMIs at record levels

Adding to my optimism is the rate at which the S&P 500 companies are outperforming earnings expectations and the amazingly positive PMI readings for the manufacturing and services sectors last month.

So far, 87% of companies in the S&P 500 have reported second quarter results, and of those 87% have exceeded Wall Street forecasts. If 87% were the final rate for the quarter, it would be the highest percentage since FactSet began collecting this data in 2008.

The IHS Markit Manufacturing PMI for July hit 63.4, the most significant improvement in operating conditions at the US plants since records began in 2007. This is perhaps “the highest-grossing market we’ve seen … the steepest rate ever, and…” manufacturers can raise their selling prices to an unprecedented level, ”says IHS Markit’s Chris Williamson.

US factories expand at a record pace in July

USGI, IHS Markit

Service providers also had a blowout month. Services PMI also hit an all-time high of 64.1, the 14th consecutive month of expansion for the services sector.

US services PMI hit a new high in July 2021

USGI, ISM

It is important to remember that the PMI, or purchasing managers index, is forward looking. It measures the growth expectations of factories and service providers at least in the next few months. If they are more optimistic, as they are now, they are more likely to increase orders for raw materials (in the case of manufacturers) and finished goods (in the case of service providers).

And since the U.S. economy has created nearly 1 million jobs for two months in a row, my assumption is that demand will remain strong.

IT’S STILL TIME!

Next week, on Wednesday, August 18th, I’ll be attending a webcast about gold and Bitcoin and will be accompanied by none other than Bitcoin evangelist Michael Saylor, founder and CEO of MicroStrategy. To receive the link to book your place for this exclusive chat, email me at info@usfunds.com with subject line “Michael Saylor Webcast”. Demand was higher than I expected so don’t hesitate to sign up!

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The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 stock prices of US companies. Comprising 90 of the largest publicly traded commodities and commodities companies that meet certain inevitability requirements, the S&P Global Natural Resources Index offers investors diversified and investable equity exposure to 3 primary commodity-related sectors: agribusiness, energy, and metals & mining. The purchasing managers index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five main indicators: incoming orders, inventory levels, production, supplier deliveries and the employment environment.

The stocks can change daily. The stocks are shown at the end of the last quarter. The following securities mentioned in the article were held by one or more accounts managed by US Global Investors as of June 30, 2021: Tesla Inc., Volkswagen AG, Nano One Metals Corp., Standard Lithium Ltd., Ivanhoe Mines Ltd.