Historically, race cars have had a big impact on the evolution of cars. Nearly everything in modern vehicles – from aerodynamics, steering wheels, and suspension to transmissions and turbochargers – was born from innovations on the racetrack.
That’s because race cars today are technological marvels.
After all, flying down the back straight at over 200 miles-per-hour and barely lifting off the throttle into a turn takes courage. It also means having the most cutting-edge tech in the car.
The driver may get all the glory, but it’s the engineering team behind the scenes that makes it happen. Their input on what parts to use and how to set up the car can make or break the outcome of every race.
So it makes sense that the racetrack tends to be a proving ground for new tech that ends up in our own vehicles.
But innovations aren’t just for traditional gas-powered cars anymore… The future is electric.
And we’re seeing that shift in auto parts suppliers. They see what’s on the horizon, and they’re shifting their business to take advantage.
It’s an adapt-or-die moment for auto parts suppliers in the unstoppable electric vehicle (EV) trend… and the time to position yourself is now.
The Future Is Electric
At Casey Research, we often talk about how one of the best ways to invest in a major trend like EVs isn’t through the major players. It’s through the picks-and-shovels businesses behind the scenes.
They’re the ones often overlooked by the mainstream in favor of household names.
That’s why last week, I recommended shares of a behind-the-scenes EV player to readers of my Strategic Investor newsletter. It’s the perfect picks-and-shovels play.
I can’t tell you the company out of loyalty to my paying subscribers… but it is a leading auto parts supplier with over a century of history.
What I can tell you, though, is that auto companies see the writing on the wall… and realize they need to change things up to stay relevant.
The ones that do end up long-term winners. The ones that don’t get left behind… or go bust.
That’s what’s happening in the auto industry right now.
Even so… widespread EV adoption isn’t as simple as companies like Ford pushing EVs to the forefront of their car lineup. We also need advanced infrastructure to support that kind of adoption.
We Can’t Support EVs… Yet
The current charging network is still in its infancy. Today, there are only around 89,000 public charging stations in the U.S.
For most of us, charging stations aren’t much of a concern… That’s because with about 168,000 retail stores in the U.S. selling gas, we can easily drive down the street and fill up anytime.
But for EV owners who regularly travel far enough from home, finding a charging station can be difficult. It’s one concern holding back mass adoption.
The good news is the government is turning on the money gun to make that happen, with the $1.2 trillion recent infrastructure bill.
In 2020, Congress approved $641 million for charging infrastructure. The Biden administration is upping the ante to $7.5 billion in this latest infrastructure package. The goal is to have at least 500,000 public EV charging stations installed across the U.S. by 2030.
But according to Bloomberg New Energy Finance (BNEF), the U.S. needs three times that amount by 2030. So whatever plans the government has for spending, it’s a safe bet the final figure is much higher.
What’s Next
Today, there are about 1.8 million registered EVs in the U.S. That only makes up 2% of all cars on the road. So while the U.S. sells around 17 million new cars every year, EVs still only make up a very small percentage.
But things are changing. According to BNEF, EV sales may make up 35% of all auto sales by 2030. That’s 6 million new EVs on the road in just 2030 alone.
That means 25% of all cars in the U.S. would be EVs. By 2040, BNEF expects that figure to jump to close to 80% of all new car sales.
Like we said earlier, this upcoming adoption of EVs will require more charging stations… and more parts for construction.
A Tesla Model 3 has only 10,000 parts… while a traditional gas-powered car has about 30,000.
Even more impressive, an EV engine only has around 20 moving parts. An internal combustion engine (ICE) has 2,000 moving parts.
And auto suppliers are already setting up to capture a big slice of the EV parts pie.
What to Do
At the end of the day, you should be buying into behind-the-scenes companies that are set to benefit from the unstoppable EV trend.
You want companies that don’t need to convince you to use their products. Chances are you’ll end up using them anyway, regardless of what car you drive.
If you need a place to start, the Global X Autonomous & Electric Vehicles ETF (DRIV) has a basket of companies that are set to benefit from the rise in EVs. Although it does have some mainstream holdings like Tesla, there are several picks-and-shovels holdings as well.
No matter how you choose to play it… make sure you keep your eyes on this space.
Keep walking the path,
David Forest
Editor, Strategic Investor