Our theme of EV Supplier stocks has been a mixed performer this year, rising by about 9% year-to-date, compared to the S&P 500 which has gained over 14% over the same time frame. This follows a difficult 2022, which saw the theme decline by 21%. Now the macro-environment has actually been somewhat favorable for tech and futuristic stocks, with inflation cooling, and the Federal Reserve holding back on interest rate hikes. However, there could be a couple of factors impacting supplier stocks. EV bellwether Tesla
TSLA
has been slashing prices on its vehicles over the past two quarters in multiple markets as it looks to drive sales. This has triggered a price war of sorts, particularly in the sizable Chinese EV market. This could be weighing on supplier stocks to an extent, as lower selling prices could mean more stringent component cost management on the part of OEMs. Moreover, the discontinuation of the 13-year-old New Energy Vehicle purchase subsidy in China has also resulted in some headwinds.
That said, EV sales have held up pretty well thus far this year. In the U.S. EV registrations during Q1 2023 grew by 63% versus the year-ago quarter per Experian. The forecast for the market remains strong, with Counterpoint research projecting that global EV sales will stand at 17 million units in 2023. The longer-term picture also looks promising. The total light vehicle market stood at about 90 million units prior to Covid-19. It’s quite likely that the passenger vehicle market will transition almost entirely to EVs in the coming decades, providing meaningful room for expansion for EV suppliers.
Within our theme, TE Connectivity stock, a company that sells a range of connectivity and sensor solutions, has been the strongest performer, rising by about 19% year-to-date. On the other side, Albemarle stock, a specialty chemicals manufacturing company, which is also one of the leading lithium producers, has been the weakest performer with its stock rising by just about 5% year-to-date.
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