EV industry faces a ‘red line’ for growth through 2027, analyst says

Cowen Managing Director and Senior Research Analyst Jeff Osborne joins Yahoo Finance Live to discuss the top stocks in the EV space, key themes investors should look out for, and which companies are set to benefit from increased demand.

Video transcript

- Welcome back to "Yahoo Finance Live." Tesla this morning denying reports it plans to cut December output at its gigafactory over in China. Despite shares down for 2022, our next guest says that the EV maker has really led the charge in the space and, in fact, fundamentally changed the industry. Joining us now is Jeff Osborne, Cowen senior research analyst covering the sustainability/mobility/technology sector.

Jeff, you've got a light read, a massive 475-page report, where you partnered with 16 other analysts at the firm to come up with over 50 stocks that could benefit in the EV space. But I want to start with your outlook here because you've talked about EV penetration being at well over 20% by 2025. That is a much faster clip than forecasts in the past. Who stands to benefit the most?

JEFF OSBORNE: Yeah, certainly Tesla did pave the way for the EV train to leave the station, so to speak. But we see a variety of different companies benefiting at Cowen, starting with semiconductors. You have about two to three times the number of semiconductors in an electric vehicle as you do in internal combustion engine vehicle.

Some of the tier one suppliers that I cover-- Aptiv, for example, is a top idea of mine, as well as Visteon. But there's a variety of plays. Charging and lithium in particular as well are gating obstacles to grow the industry. So, as you mentioned, 15, or sorry, 50 ideas that we came up with, a variety of companies in the tech space in general.

- And so you mentioned some constraints there, what we might see with semiconductors and also what we're seeing with lithium batteries. When you do have this influx of EV adoption coming on, how prepared is the industry to deal with those constraints?

JEFF OSBORNE: Yeah, certainly the semiconductor industry has ramped up a lot quicker. The battery capacity has ramped up. It does take, unfortunately, about four to seven years to build a mine versus a year to build a new factory for chips and batteries. So that's really where the disconnect is that you're seeing.

I think between now and, say, 2027, you have a bit of a red line in the industry as to how quick this industry can grow. But when you look beyond that, you're seeing the OEMs-- GM, Ford, Tesla-- going straight to the mines. That's allowing them to get better funding terms and move the industry forward. So I'm very bullish when we look beyond the midpoint of the decade, especially heading out to 2030, where I think you'll get well into the 30% to 35% penetration for electric vehicles.

- There's one particular name you're especially bullish on, SolarEdge Technologies, saying that's the best idea for 2023. Walk me through your thesis.

JEFF OSBORNE: Sure. I cover two different worlds. So on the renewable energy side, SolarEdge is our top idea for 2023. It's a solar inverter company. So think of it as a router for electrons that are coming off of your solar panels.

And you're seeing a nice tying together with EVs. When you buy an EV, about 30% to 50% of your electricity consumption is increased at your home. And so more EV owners are going solar, see SolarEdge leading the charge, so to speak, in terms of their ability to manage the electron, so pairing with batteries, pairing with EV chargers, and really being a better constituent with the grid to allow solar to interoperate with utility networks in a much better fashion.

- And just quickly, I want to ask you about the voltage changes that we're seeing. Originally we tended to see them in the 400 range. But you're starting to see them in the 800 range as well. What is that going to do to the industry?

JEFF OSBORNE: Yeah, you're spot on. So consumers want to charge faster. They also want to charge quicker. And so to do that, you need to increase the voltage in the car. And so that has a profound impact on the types of semiconductors used.

You move to what's referred to as silicon carbide. So that can be companies like STMicro, Infineon, Wolfspeed that my colleagues Josh Buchalter and Matt Ramsey cover. But it also has an impact on the tier one supplier. So companies like Aptiv and Visteon benefit there.

And so Tesla, which you're showing on the screen, uses a sub-400-volt wiring harness. But you are seeing quite a few new vehicles, led by the Porsche Taycan and Hyundai's family of vehicles, using 800 volts. And there's certainly a lot of attributes that benefits the consumer in terms of faster charging and better range.