Plugging into Profit: Investing in companies powering the EV Industry

In 2021, 20% of Australia’s carbon emissions came from transportation alone. Transport is Australia’s third largest source of greenhouse gas emissions and cars are responsible for half of all transport emissions. Australia’s per capita transport emissions are 45% higher than the OECD (Organisation for Economic Co-operation and Development) average, ranking Australia second-worst for transport energy efficiency. Hence, electric vehicles (EVs) have attracted attention as they play a major role in achieving decarbonisation. In recent years, there has been an acceleration of EV uptake across many countries. There were only 2 million EVs around the world in 2016. However, in 2021, 6.6 million EVs were sold in that year alone with 16 million EVs being driven worldwide. Another 8 million EVs were expected to have been sold in 2022 (Source: International Energy Agency). In Norway, 65% of all vehicles sold in 2021 were electric mainly due to aggressive government subsidies. Despite the increasing worldwide adoption of electric vehicles, EV uptake in Australia has been lagging behind significantly. EVs, in combination with renewable energy, are critical to reducing Australia’s carbon footprint.

As the shift towards sustainable transport continues around the globe, investing in ASX-listed and international companies that support electric vehicle uptake in Australia can be a smart financial decision while also contributing to the country's environmental efforts. Here are some of the top ASX and international companies that are supporting electric vehicle uptake in Australia.

1. Tesla Inc. (NYSE:TSLA) US$589.2B

Tesla is a global leader in electric vehicle production, and it has a significant presence in Australia. The company manufactures electric cars, batteries, and energy storage products. Tesla's Model S, Model X, and Model 3 electric cars are available in Australia, and the company also offers charging stations across the country. The company has a market capitalisation of over $700 billion and is considered one of the most valuable automakers in the world.

Competitors: Ferrari (NYSE:RACE) US$51.4B, General Motors (NYSE:GM) US$48.2B, THOR Industries (NYSE:THO) US$4.2B, Winnebago Industries (NYSE:WGO) US$1.8B

Volatility

Tesla's share price has not been too volatile in comparison to the rest of the industry and the market over the past 3 months and its weekly volatility has been at a stable rate of 9% during 2022. This indicates that the company's share price is stable and predictable.

Returns

Tesla has become increasingly profitable over the past 5 years. The company's earnings has grown by 82.2% per year and its current net profit margin has increased by 5.1% over the past year to 15.4%. Tesla's current ROE of 27.4% is considerably high in comparison to the industry average of 24.4%.

Financial Health

Tesla is in a good financial position as their assets exceed liabilities in both the short and long-term. Moreover, the company's Debt-to-Equity ratio has fallen significantly over the past 5 years, from 185.5% in 2018 to 4.5% in 2023. This means they have more cash than debt, and their debt is covered by their cashflow.

2. Mineral Resources Limited (MIN)

Mineral Resources Limited is a mining services company that is involved in the production of lithium, which is a key component in EV batteries. The company also has interests in other metals such as nickel and cobalt, which are also used in EV batteries. Mineral Resources Limited is the largest lithium producer in Western Australia and operates the Mt Marion lithium mine in the state's Goldfields region.

Competitors: South32 (ASX:S32) AU$20.2B, IGO (ASX:IGO) AU$10.2B, Iluka Resources (ASX:ILU) AU$5B, Lynas Rare Earths (ASX:LYC) AU $6.2B

Volatility

MIN share price has not been too volatile in comparison to the rest of the industry over the past 3 months, typically moving up or down at an average rate of 7% per week. This rate has remained constant over the past year and indicates that the company's share price is stable and predictable.

Returns

Although Mineral Resources has a high level of non-cash earnings and falling net profit margins, it has a high return on equity that is 4.1% above the industry average. However, the company's negative earnings growth over the past year may be a concern to some investors.

Financial Health

Mineral Resources' short-term assets exceed their short-term liabilities and their long-term assets exceed their long-term liabilities. However, their short-term assets do not cover their long-term liabilities. This may make it difficult for the company to meet the commitments it has made which are due in more than a year. Moreover, Mineral Resources' debt-to-equity ratio has increased dramatically from 5.3% to 81% in the last 5 years. Yet, the company has a satisfactory level of net debt-to-equity ratio of 7.8% and their debt is well covered by their cashflows. The interest payment on their debt are also well covered by EBIT (11.2X coverage).

Dividends

Mineral Resources has a dividend yield of 3% that, despite being well covered by cashflows (58% earnings payout ratio), is considered low compared to the top 25% of dividend paying companies in Australia. Moreover, the payments have been volatile in the past 10 years. The company is also paying dividends with no free cashflows. It has a dividend cash payout to shareholders of -101%.

3. General Motors (GM)

4. Volkswagen (VOW)

5. Ford (F)

6. BMW (BMW)

7. BorgWarner (BWA)

8. Sensata Technologies (ST)

9. Aptiv (APTV)

10. NXP Semiconductors (NXPI)