Luminar (NASDAQ: LAZR), a company that makes lidar scanners – a laser-based technology that is used to detect nearby objects in self-driving cars – went public on Thursday. Luminar had a market cap of close to $8 billion in Thursday’s trading, despite posting Revenues of just about $13 million last year.  So what’s the narrative driving the company’s lofty valuation? Firstly, investor interest in the self-driving market is high, and Luminar is one of the few pure-play stocks in the space. Luminar pegs its total addressable market at about $5 billion presently and estimates that it could grow to about $150 billion by 2030. Secondly, Luminar’s products combine its custom components and related software into a complete package, which should help the company differentiate itself versus off-the-shelf lidar components which are more commoditized. The company has also forged significant partnerships, including deals with seven of the top 10 automakers, and has an order book of about $1.3 billion. That said, there could be some technology risks. Tesla (NASDAQ:TSLA) – the most valuable carmaker and the undisputed leader in the self-driving space at the moment – doesn’t use lidar technology, instead opting for lower-cost hardware such as cameras and radar systems, which it says perform better compared to lidar.
See our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries.
[Updated 10/19/2020] Why Suppliers Might Be A Better Way to Play The Electric Vehicle Market
Investing in the fast-growing electric vehicle market looks tricky at the moment. Pure-play EV stocks have rallied big this year and look overvalued. For instance, Tesla (NASDAQ:TSLA) is up 5x this year, while China’s Nio is up over 7x. On the other hand, mainstream automakers who have been slowly transitioning to electric drivetrains could face financial challenges due to the disruption caused by Covid-19. Our indicative theme of Electric Vehicle Component Supplier Stocks – which includes stocks of companies that make EV components and raw materials for batteries – could be a good way to play the growing electric vehicle market, without having to bet on individual brands. The theme is up by about 9% year-to-date, versus the S&P 500 which is up by about 8% over the same period. While Albemarle (ALB) is the strongest performer in the theme, up by about 30%, BorgWarner (BWA) stock is down by about -10%. Below, is a bit more about these companies and how they’ve fared so far this year.
Albemarle (ALB) is the world’s largest producer of lithium for EV batteries. Most electric vehicles are powered by lithium-based batteries and it’s likely that demand for the material will rise as EV adoption grows. The stock is up by about 30% year-to-date.
TE Connectivity (TEL) provides a range of products including connector systems, sensors, and relays for a range of industries such as automotive, aerospace, defense, and oil and gas. The company has increasingly been focusing on products for hybrid and electric vehicles. The stock is up by about 14% year-to-date.
Amphenol Corporation (APH) sells a range of components used in EVs including charging inlets, charge plugs, various sensors, and power distribution systems. The stock is up by about 7% year-to-date.
Aptiv (APTV) provides a range of solutions for the auto industry, including autonomous driving technologies, safety technologies, components, and wiring. The stock is up 4% this year.
BorgWarner (BWA) is an auto components and parts supplier best known for its manual and automatic transmissions. The company is doubling down on the EV space, producing electric motors, power transmission, and power electronics for electric vehicles. The stock is down -9.5% this year.
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