Top electric vehicle stock picks: UBS

  • UBS estimates 20% of global new car sales will be electric by 2025 and 50% by 2030.
  • The analysts took a deep dive into Volkswagen’s ID.3 and explored the outlook for the EV market.
  • Insider breaks down UBS’s 30 top stocks to capture the EV boom based on the deep dive.
  • See more stories on Insider’s business page.

Swiss investment bank UBS just took a deep-dive into what it’s saying is the most credible electric vehicle effort by a legacy automaker so far.

UBS analysts have been examining every aspect of the Volkswagen ID.3 to help understand the direction of the electric vehicle industry and the positioning of major legacy auto players versus new pure-play rivals, such as Tesla (TSLA) and Nio (NIO).

But why the Volkswagen ID.3? The analysts see it as a representation of legacy auto makers foray into electrics. Volkswagen is the second-largest automaker in the world after Toyota and this is its first completely from-scratch electric offering.

The firm is also known as the original equipment manufacturer (OEM) with the most aggressive global electric vehicle strategy, the analysts said.

On March 2, UBS released the comprehensive report led by UBS analyst Patrick Hummel. The report highlighted the Volkswagen ID.3’s competitiveness in the electric vehicle space, kickstarting the firm’s “unparalleled EV offensive.”

“VW’s software platform and ecosystem is top-notch vs. most legacy peers, but years behind Tesla,” Hummel said.

The three key findings from the report were:

  1. Volkswagen’s electric vehicle platform is fully cost-competitive, which provides a basis for electric vehicle sticker prices as well as demonstrating margin parity to conventional cars by 2025.
  2. Batteries remain the main driver of cost reductions. Tesla is still the leader in this space, Hummel said.
  3. Software is the biggest challenge for electric vehicle manufacturers over the long-term.

EV market outlook

The Volkswagen findings were leveraged to provide an upgraded outlook on the overall electric vehicle market with the analysts expecting full EV manufacturing cost and margin parity being achievable for leading legacy OEMs by 2025.

The global outlook, however, is dependent on two key variables:

  1.  The steepness of the EV adoption curve. 
  2.  The technology race between Tesla (and EV start-ups) and legacy OEMs.

The team listed four current potential scenarios for EVs:

  1. “Auto companies like VW can narrow the tech gap or even take the lead, while EV penetration growth overall keeps beating consensus estimates,” Hummel said.
  2. “Tesla and other EV pure-plays widen their tech lead over legacy Auto Inc, while the EV penetration curve is very steep. The gap becomes particularly large on the software side – legacy OEMs lose market share as their product is seen as inferior by consumers,” Hummel said.
  3. A slower EV curve, possibly driven by battery bottlenecks.
  4. A slower EV curve with EV’s not reaching full competitiveness compared to ICE cars.

The analysts believe Scenario 1 is now the most likely, compared to Scenario 2, which was consensus 12 months ago.

UBS also raised their own expectations for the market share of electric vehicles in new global car sales.

By 2025, UBS analysts estimate electric vehicles will account for 20% of all new car sales and will account for 50% by 2030.

“Given the long time horizon and uncertainty about many moving parts, a 17-23% EV share in 2025 and 40-60% in 2030 fall within our base case,” Hummel said.

The upgraded estimates are based on the technology and cost breakthrough, the increasing consumer choice of attractive EVs and a regulatory environment that favors EVs, Hummel said.

The optimistic view is based on the US market, Hummel believes the new administration will likely  substantially improve the EV regulatory framework.

“What drives EV earnings from here? Hummel said. “Economies of scale. Legacy OEMs with all-in EV strategies like VW can likely fully eliminate the gap versus Tesla, and will enjoy a scale advantage over all other EV pure-plays.”

Right now, UBS analysts expect Tesla and Volkswagen to be the largest sellers of electric vehicles in 2025 by a wide margin.

“VW should be well ahead of all other legacy OEMs, thanks to scale, but with a much smaller upside from software vs. Tesla,” Hummel said.

Stock picks

The full deep-dive is 115 pages and looks at the VW ID.3 from battery usage, to upstream commodities, to semiconductors as well as the wider impact the EV industry will have on those sectors.

Insider breaks down UBS’s top 30 stock plays for the EV market across a range of sectors based on findings from the deep dive.