Which Industries Will Benefit from EVs?

A slowdown in the shift to EVs has been a headline in the news recently. There does seem to be signs, such as Ford and GM announcing that they will be delaying some planned increases in production of EVs, that the move to EVs has started to progress slower than some had anticipated. Nonetheless, many automakers have already committed vast sums to work on developing and producing EVs, which, in addition to support and mandates from various governments around the world, seem to suggest that greater adoption of EVs will be a prominent theme over the next decade, even if the pace of this shift to EVs happens more slowly than forecasted. If the shift to EVs does continue, certain sectors and businesses may benefit from the tailwind created by greater production and ownership of EVs.

Of course, the most obvious investments to play the EV trend are auto manufacturers themselves. Tesla and BYD are the EV leaders in market share. Along with those two EV giants, there are a plethora of EV startups that have gone public over the past few years, including Rivian and Lucid, and most large legacy automakers are also manufacturing EVs and have plans to continue to scale production, such as Volkswagen, Hyundai, and General Motors.

While automakers will, obviously, be impacted by the shift to EVs, they won’t be the only companies affected. What other sectors and companies may benefit from greater adoption of EVs? That is the question we will be discussing in this article.

Sectors that may benefit from EVs

Mining Companies

The batteries that go into EVs require a substantial amount of natural resources. As EV production increases, more and more batteries will be needed, and subsequently, demand from the EV sector for key resources will increase. This can be very positive for mining companies.

Among the resources needed for EVs, lithium stands out more than the rest. Why? Mainly because a very large portion of the demand for lithium is from EV batteries. The IEA claims that in 2022 EV batteries drove about 60% of the demand for lithium. This means that the EV industry is likely to continue to have a very large influence on the market for lithium, larger than any other end market.

There are many publicly traded lithium miners. Albemarle, Sociedad Quimica y Minera de Chile S.A., and Livent are just some of the companies in this space.

While demand for lithium will very likely increase due to the increased production of EV batteries, it is important to note that supply will likely rise considerably too. Companies have been investing significantly in lithium production, and lithium production is forecasted to rise substantially. Therefore, an increase in demand for lithium won’t necessarily make prices of lithium increase if supply keeps up or surpasses demand.

Another risk for the lithium industry is alternative battery chemistries that do not use lithium. Sodium-ion batteries, which do not use lithium, are one possibility that is already gathering interest. Two major Chinese battery makers, BYD and CATL, both are working on sodium batteries. Sodium-ion batteries are not currently as energy dense as lithium-ion batteries, but their energy density could increase with technological advancements. The big draw for sodium batteries is that, by bypassing lithium and instead utilizing sodium, they can be produced more cheaply, a major advantage which could help lower the price of EVs. Even if they don’t catch on for EV batteries, sodium-ion batteries could potentially be utilized for storing energy to power the electrical grid, a usage where energy density could more readily be sacrificed for significant cost savings. It is still very early in the development of sodium batteries, so it is difficult to predict if sodium batteries will take a significant share of the EV and/or energy storage markets.

Other critical minerals, such as cobalt, graphite, manganese, and nickel, can also benefit from the shift to EVs. However, these minerals have a wider range of usage, so demand for these minerals is not as dependent on EVs. For example, the IEA reported that, in 2022, EVs contributed to approximately 30% of the demand for cobalt and only 10% for nickel as compared to 60% for lithium. Hence, even a big increase in EV production likely won’t alter the supply-demand dynamics for these minerals as much as with lithium. Nonetheless, more EVs should be good news for producers of these critical minerals as well. Vale, Glencore, and BHP Group are a few of the mining companies that produce some of the critical minerals used in EVs.

Semiconductors

EVs use a lot of semiconductors. On average, over double the amount semiconductors go into an EV as compared to a vehicle powered by an internal combustion engine. The battery management system and inverter both need a significant amount of semiconductors. The increased amount of semiconductors in EVs should be good news for some companies in the semiconductor industry. A 2022 report by McKinsey & Company forecasts that the automotive market could account for 13%-15% of demand for semiconductors by 2030 as compared to 8% in 2021.

The big semiconductor equipment manufacturers should benefit from the increased demand for semiconductors from EVs. Companies like KLA Corporation, Applied Materials, and Lam Research fall into this category. These companies have a very wide exposure in the semiconductor industry, so while an increase in demand for semiconductors coming from EVs should help them, there are many other factors impacting these companies, and the impact of EVs may be rather limited.

NXP Semiconductors and Analog Devices both supply chips used in battery management systems in EVs. The TAM for this market should see solid growth as battery management systems are integral for EVs.

Increased usage of silicon carbide (SiC) is one area that may experience a big rise with EVs and could benefit some semiconductor companies. SiC has numerous advantages, such as being more efficient and being able to better handle heat. In practical terms, this means EVs can have more range and charge more quickly. This is a major benefit, as one of the criticisms directed at EVs is insufficient range and long charging times. SiC helps to solve these issues, so there are compelling reasons why automakers may choose to utilize more SiC components in their EVs. ST Microelectronics, Infineon, Wolfspeed, Rohm Semiconductor, and ON Semiconductor are some of the semiconductor leaders in the SiC device market.

Another interesting name to play the increased use of SiC trend is Aehr Test Systems. It produces machines that help to test SiC devices and wafers, essentially helping semiconductor companies with quality control. Since it is much more preferable to discover a problem during manufacturing rather than after a SiC device is installed on an automobile and sold to a customer, Aehr may play a significant role in the SiC market. However, Aehr now has very high customer concentration, with one customer being responsible for the majority of its revenue, which is one of the major risks with Aehr.

Home Electrification

For many people, they will charge their EVs the majority of the time at home. This means that people will be using more electricity at home. The increased usage of electricity could mean that consumers may have higher electricity bills and make them more conscientious of how they utilize power in their homes. Individuals could look for ways to save on electricity, and one option is residential solar. Residential solar systems give people the potential possibility to charge their EVs with power generated by their own solar systems rather than having to pay for power from the grid.

Enphase Energy and SolarEdge are two of the biggest players in the residential solar market and both could benefit from more EVs. Both companies offer inverters and battery storage systems. Furthermore, both companies seem to recognize the potential opportunities opened up by EVs. Enphase and SolarEdge both offer their own EV chargers which works with their respective solar systems. By offering a package of a solar system, battery storage, and EV chargers, Enphase and SolarEdge are both enhancing the value proposition that they offer consumers and creating a larger home energy ecosystem, enabling a potentially more efficient way to produce and manage power in the home.

To be sure, there are many factors which impact the residential solar market, and greater EV adoption is only one factor. Currently, high interest rates are creating very strong headwinds for residential solar. While greater adoption of EVs may be a catalyst which helps the residential solar market in the long run, at least in the short term, it seems that high interest rates is the biggest factor impacting demand for residential solar.

Energy Infrastructure

Increased adoption of EVs will require more electricity production and transmission by the electrical grid. However, the electrical grid in the United States is already strained. During peak times of usage, some areas have experienced power outages, particularly in California. Therefore, the electrical grid currently may not be powerful enough to handle the mass adoption of EVs in addition to greater electrical demand created by other factors as well, such as a push towards heat pumps, greater usage of electronics in the home, etc.

In order to solve this problem, investments in the energy grid will need to be made. This presents an opportunity. Companies involved in the design, construction, maintenance, and upgrading of the electrical grid could benefit from the added investment in the grid needed to support EVs.

Quanta Services and NV5 Global both provide engineering services to utilities which could see increased demand from greater investments in the electrical grid. Itron offers technology that can help to monitor the electric grid, and utilities might look for more technological solutions such as those offered by Itron in an effort to bolster the reliability of the grid.

However, while the electrical grid may need more investments to meet the greater demand for electricity generated from EVs, the amount and timing of these investments are unclear. Furthermore, a recession could put a strain on budgets and cause, at least temporarily, less funding to be available for grid improvements. Quanta Services, NV5 Global, and Itron also serve various markets, so headwinds in other markets they serve could outweigh tailwinds generated from greater investments in the electrical grid.

Conclusion

The sectors and companies mentioned in this article are certainly not an exhaustive list of every sector and company that may benefit from the shift to EVs. A comprehensive list would likely be much, much longer. Nonetheless, by looking at just a few companies and industries impacted by EVs, what I think does become clearer is that the shift to EVs impacts a wide sway of the economy, extending beyond just companies in the automotive industry. Like any major economic shift, there will likely be companies that are major beneficiaries of the shift to EVs and, conversely, some companies will likely see their prospects fall as they fail to adapt.

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