Ways to Play an Electric Car Future

By Matthew Luke - June 25, 2012 | Tickers: AONEQ, AVAV, GE, NRG, TSLA | 0 Comments

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Despite what adherents of any particular car technology would have you believe, the future of the car is still an unknown. Gas, hybrid, electric, hydrogen, natural gas, biofuel or possible some currently unknown technology -- it is difficult to see which direction the auto industry will turn. With that said, let’s take a look at one possible future. If current prognosticators are correct about an electric car future, where do we as investors look for profitable opportunities?

Automakers

Do you play an electric car future with the automakers? The automakers seem the most obvious choice. With the recent release of the Focus Electric by Ford, nearly all of the major automakers now have electric vehicles on the road. Automakers are, however, notoriously difficult businesses, full of labor issues and legacy costs. If automakers are the answer, perhaps the relative start-up company Tesla Motors (NASDAQ: TSLA), with its lack of legacy costs, is a better investment than its much older and much larger peers.

Part Suppliers

Do you play it using the auto part suppliers? Thus far, pure-play battery companies like A123 Systems (NASDAQOTH: AONEQ) have been absolutely horrible investments. The more diversified auto part companies such as Johnson Controls (NYSE: JCI) have done a fairly good job of climbing out of the hole created by the financial crisis and auto industry-specific issues. Johnson Controls has positioned itself nicely to benefit from a possible electric car future with its battery business.

Utilities

Do you play it using the electric utilities? If the electric car is our future, then naturally electric utilities will be the replacement for today’s gas stations. NRG Energy (NYSE: NRG) is currently building its privately funded charging network called eVgo. Other electric utilities are also busy installing public charging stations in their own service-area footprints.

Infrastructure

Do you play it using the electric vehicle infrastructure companies? Unmanned aircraft defense contractor AeroVironment (NASDAQ: AVAV) is also a designer of electric vehicle charging stations and support services. AeroVironment manufactures a variety of charging stations that will be a necessity in an electric car future. They are also a provider of billing support and analytics for the owners of charging stations (such as the aforementioned NRG Energy).

Conglomerates

Do you play it using the diversified conglomerates with their hands in a little of everything? General Electric (NYSE: GE) is one such company. General Electric’s CEO has said “For every dollar invested in electric vehicles, GE has 10 cents of content.” In the automotive sector, General Electric involvement includes technologies and patents for electric vehicles. In battery segment, GE owns a 10% stake in the pure-play battery maker A123 Systems. On the utility side, General Electric is designer and manufacturer of systems and products used by all manner of electric utilities (nuclear, natural gas, solar, hydro, coal). GE also provides smart-grid technologies that enable utilities to manage the impact of electric vehicles on the power grid. Finally, much like AeroVironment, General Electric is also a manufacturer of charging stations for the electric vehicle infrastructure, in addition to providing billing and analytic services for charging station owners.

I asked a lot of question in this article, but I gave no answer to any. Like many investors, I’m not sure about the best way to play a possible electric car future. The automakers, part suppliers, utilities, infrastructure? Perhaps an all-of-the-above approach is the correct answer.

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