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MAR. 05, 2021

Let’s Talk About Sector Rotation

The global EV market

According to the Global EV Outlook 2020, the sales of electric cars reached 2.1 million globally in 2019, surpassing 2018, which was already a record year, to boost the stock to 7.2 million EVs. In absolute terms, China remained the world’s largest EV market, with 2.3 million EVs in active use. To put that into perspective, that’s nearly half (45%) of the global stock of EVs. Europe and the U.S. are relatively far behind with 1.2 and 1.1 million EVs respectively.

But when it comes to relative terms, the situation in Europe is looking a lot more positive. While only 5.2% of China’s vehicles are electric, Norway had 56% of its vehicles running on electricity in 2019.

The runners up Iceland and Netherlands have reached 25.5% and 15% EV penetration, respectively.

This week, technology stocks, in particular, have taken a beating as markets are experiencing a huge sell-off. Major companies are suffering as investors are ditching stocks that have thrived in the work-from-home environment in favor of stocks that have lagged last year. A lot of investors are clearly betting that vaccinations will end lockdowns and fuel economic growth aiding cyclical stocks.

It seems that markets are finally waking up to the idea that the post-pandemic recovery is, in fact, much stronger than initially expected. This pullback is no big surprise given that hopes for the end of the pandemic are high and the outlook that we will return to a more normal economy afterwards. It does, however, present a buying opportunity for those who have the patience to see that play out. After all, we don’t believe that the secular bull market is over yet, far from it, and pullbacks are normal.

What we are currently seeing is a clear rotation away from technology stocks with other sectors likely to take the market leadership. Once the economy begins functioning at peak level again, oil prices may recover,but the course toward renewable energy and electric vehicles has been set. We might very likely see a rotation out of some very big technology names, such as Amazon (AMZN US) and Apple (AAPL US) into where the future could be. We believe that future may well likely be in electric vehicles (EV) and autonomous vehicles (AV) and the businesses within that sector, such as battery storage and utilities.

We believe that the current administration in the U.S. will help push that trend forward. And when we say that we see this trend being the future, then we are really talking long-term. We have entered the decade of EV and 2030 is likely when we will see EV and AV become material in the auto space.

EV is here to stay

Morgan Stanley estimates that global electric-vehicle sales will grow 50% or more this year, while sales of internal combustion engine vehicles are expected to grow 2% to 5%.

The leading stocks in EV and battery companies are Tesla (TSLA US), Nio (NIO US), General Motors (GM US), Toyota Motors (TM US), Plug Power (PLUG US), and QuantumScape (QS US).

The current pullback in these stocks is presenting an attractive entry point for investors who have missed the remarkable stock market run of last year, which has made Elon Must the world’s richest man at one point. Clearly, investors are betting that EV is here to stay, irrespective of which company ultimately inherits the future of EV.

We thank you for the continued support.

LARA AND JOHN