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As sexy as the growl of an internal combustion engine sounds, it won’t be the sound of the future. The quiet whirring of electric vehicles (EVs) will be, whether you like it or not.
The electric revolution has been building for years and we’re nearing a future where electric vehicles will dominate. In fact, Bloomberg New Energy Finance said in its Electric Vehicle Outlook 2018 report that “sales of electric vehicles [will be] increasing from a record 1.1 million worldwide in 2017, to 11 million in 2025 and then surging to 30 million in 2030 as they become cheaper to make than internal combustion engine (ICE) cars.”
In terms of electric car makers, Tesla (NASDAQ: TSLA) is the only major all-electric player out there and has been dominating headlines for the last decade. First with its Roadster, then the luxury Model S sedan, then with its Model X SUV, and more recently, with its mass-market Model 3 and Tesla Semi.
Production, cash flow, and Elon Musk woes aside, the carmaker has proven—most notably with its record-breaking Model 3 reservations—that the demand for electric vehicles is surging worldwide.
And other carmakers have taken note. Everyone from luxury makers like Audi, Jaguar, and Porsche, to mass-market carmakers like Volkswagen and even Ford are building EV lineups to compete in the imminent all-electric future.
Last week, Mercedes-Benz introduced its first fully electric car, the EQC SUV with a 450 kilometer range, in a bid to compete for the top spot in the luxury category of the EV market.
CEO Dieter Zetsche plans for the EQC and the company’s other electric cars to account for 15 – 25% of total sales by 2025, and says the company had virtually no choice but to go all-in on EVs because they are cheaper to operate, more efficient, and the demand is growing.
Mercedes is investing $12 billion on its electric conversion and will have 10 EV models by 2022, ranging from subcompacts to large SUVs.
Ford is planning to spend $11 billion on building out its EV line-up and plans to have 40 hybrids and EVs in its product line within the next four years.
The world’s largest carmaker by volume, Volkswagen, is planning to build 80 new EV models by 2025 across its 12 brands, an electric version of each of its 300 group models by 2030, and will begin making the new vehicles in 16 of its factories, according to a report by Automotive News.
Beginning in 2019, the Volkswagen group plans to roll out a new EV “virtually every month,” CEO Matthias Mueller said at the company’s annual press conference in March. “This is how we intend to offer the largest fleet of electric vehicles in the world.”
While it remains to be seen which automakers will come out on top in the electric revolution, carmakers’ massive investments in EVs confirms that the future will be electric.
The EV market is set to grow exponentially, and investors would be smart to have exposure to the space.
In terms of investments, investors are limited as far as all-electric carmakers go. There’s Tesla and just this week, Chinese carmaker Nio (NYSE: NIO) had its underwhelming public debut. Investors could also invest in battery makers or in the raw materials that are necessary to EV production with metals like Cobalt.
But my bet is on chipmaker Monolithic Power Systems (NASDAQ: MPWR).
Monolithic Power Systems designs integrated circuits (ICs) that make the power systems in EVs more efficient. This might not sound all that exciting, but as vehicles move into electric propulsion, maximized efficiency is crucial.
Cars have become increasingly advanced over the past several years, with everything from your car’s infotainment system, to LED lighting, to advanced driver assistance systems, to electric mirrors and seats all relying on integrated circuits. The more advanced cars get, the more they will rely on ICs and the more these vehicles will benefit from more efficient power consumption.
MPWR works with every major auto parts supplier on the planet, including Bosch, Delphi, Magna, Mitsubishi Electric, and Panasonic Automotive. And through these suppliers, Monolithic is used by major carmakers, including BMW, Ford, GM, Mercedes, Nissan, Toyota, and Volkswagen.
Despite being a major piece of the EV puzzle, Monolithic doesn’t get a lot of attention though its shares are likely to climb higher over the long term as the EV market continues to develop.
Analysts’ average price target for MPWR is $152.75, indicating upside of nearly 12% over the next twelve months, though Cowen recently rated the stock an Outperform and boosted its price target to $180 – 31.6% higher than Thursday’s closing price.