Tuesday's Market Minute: Why Wall Street Remains Positive On EV Stocks

Wall Street has been highly positive in the electric vehicle sector, specifically during its rally over the last 12 months. Despite some of the names within the sector losing momentum since the start of this year, most analysts are maintaining their buy ratings. On Monday, a Bank of America BAC auto analyst, John Murphy, boosted his forecast for the EV market’s long-term penetration in the U.S. Murphy raised his penetration forecast from 4.5% to 7% within the next 4 years. By 2030, he projects 20% penetration vs his prior estimate of 12.5%.

The analyst said that aside from cost estimates and updated targets for gas prices (among other factors), the most significant “agent of change in our cost-price parity and EV penetration estimates versus our prior projections is U.S. regulation under the new Biden administration.” Murphy assumes the $7,500 per vehicle federal EV subsidy is in place; his bullish scenario foresees federal EV incentives being raised to $10,000 per vehicle if U.S. EV penetration reaches 50% within the decade.

Currently, the major players in the space include Tesla, NIO, and traditional automakers who have moved away from their roots like Ford and General Motors. Newcomer NIO saw gains of over 1,200% in the last year as a result of its rising orders and high-profile product launches. Being a major competitor to Tesla, many see NIO as a strong contender in this space. However, this year thus far has not mimicked the success seen in 2020.

Concerns regarding the global chip shortage have been top of mind for many investors, with production delays continuing to weigh on General Motors and Ford. This has created inflationary fears, with chip prices rising as demand now trumps supply. Both NIO and Tesla TSLA closed higher on Monday, with Ford and General Motors falling on the day.

Image by Markus Distelrath from Pixabay