Morningstar - Q4 2021 - 83

EXHIBIT 1
All Across the Supply Chain This diverse range of companies stands to benefit from electric vehicle adoption.
Name
Bayerische Motoren Werke BMWYY
BorgWarner BWA
Celanese CE
DuPont de Nemours DD
Eastman Chemical EMN
Edison International EIX
General Motors GM
Infineon Technologies IFNNY
NXP Semiconductors NXPI
Sociedad Quimica y Minera de Chile SQM
STMicroelectronics STM
Tesla TSLA
Volkswagen VWAPY
Source: Morningstar Direct. Data as of 09/30/2021.
Economic Moat
Narrow
Narrow
Narrow
Narrow
Narrow
Narrow
None
Narrow
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None
Price ($)
35.50
48.54
151.60
77.41
116.75
57.82
59.17
40.31
205.72
47.33
36.38
679.70
25.04
Fair Value ($)
53.00
73.00
135.00
92.00
120.00
70.00
62.00
38.00
202.00
58.00
40.00
550.00
36.00
P/FV
Morningstar Rating
0.63 QQQQ
0.63 QQQQ
1.04 QQQ
0.72 QQQQ
0.84 QQQ
0.79 QQQQ
0.85 QQQQ
1.08 QQQ
0.89 QQQQ
0.90 QQQ
0.99 QQQ
1.29 QQ
0.57 QQQQQ
an electric vehicle because of what we call
road-trip anxiety, even though more than 95% of
the time, we're just staying in town: commuting to
work, going to the grocery store, going out
to eat dinner. An EV range would be fine for daily
normal city life.
But consumers fear that they won't be able
to use an EV on a road trip. The fear of not being
able to find places to charge is the numberone
reason consumers hesitate to buy an EV, even
more important than having to pay more for it.
That is really a big barrier to entry. That's why
we've seen a big push by governments to build
chargers along highways and in cities to give
people confidence. In my mind, while subsidies are
great near-term drivers, the biggest long-term
driver of EV adoption is governments building more
charging infrastructure. That's what's going
to alleviate road-trip anxiety. We think that enough
chargers will be in place in China, the EU, and
the U.S. to support the EV fleet and boost adoption.
Lallos: What role does hybrid technology have
in this transition?
Goldstein: Hybrids will be cheaper for the
consumer truck market. The average consumer
drives 12,000 miles a year. That's not really enough
to make up the extra purchase price of buying
an EV, but it will be enough for hybrids due to the
fuel savings versus the internal combustion
engine. That's where we see hybrid trucks and
SUVs reaching cost parity on the total cost of
ownership. And that's where we see higher hybrid
adoption for regions like the U.S. and China,
where the majority of auto sales are light trucks.
With hybrids, you don't have any functional
concerns, either. People don't have to worry about
range and finding places to charge. That may
boost hybrid sales for some of the more skeptical
EV consumers out there.
Lallos: What about EV adoption outside the consumer
auto market?
Goldstein: Motorcycles are used largely in major
cities throughout Asia and Europe for the
daily commute, where you don't have to worry
about range. You can usually charge these
bikes either at home with just a regular electric
plug, because they don't have that big of
a battery, or you can charge them pretty quickly at
a public charger. These are more expensive
up front, but you'll save on lower maintenance and
fuel costs over five years. Given the fact that
they are cheaper today on total cost of ownership,
I think that as more bikes hit the market,
the consumer will say this is a good decision.
Similarly, when we look at city vehicles-mainly
buses and commercial delivery vehicles, like
United Parcel Service UPS and FedEx FDX
vans-the business case is there to save money
by going electric right now. These vehicles
tend to drive on fixed routes. They don't drive that
many miles in a day, and they can return to the
garage and charge overnight. The functional
limitations that hold back consumers just aren't
in place, and the cost-saving argument is there. As
battery costs continue to fall, that argument
only gets stronger. That's why we forecast higher
adoption in those vehicles.
Lallos: When investors think about how to participate
in this emerging trend, they start with the
automakers themselves. Putting aside the question
of valuation, who are the industry leaders?
Goldstein: We have to start with Tesla TSLA.
Obviously, it's one of the first automakers you think
of when you think of an electric vehicle, and
they have the best technology today. But a lot of
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83

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Morningstar - Q4 2021

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