EV Charging Station Growth Could Be Huge for 8 Top Stocks

Auto Dealers

Lithia Motors Inc. (NYSE: LAD) could be a very good idea for investors wanting to participate. It operates as an automotive retailer in the United States. The company offers new and used vehicles; vehicle financing services; warranties, insurance contracts and vehicle and theft protection services; and automotive repair and maintenance services. It also sells vehicle body and parts. As of February 19, 2021, the company operated through 210 stores. It also offers its products online through 200 websites.

Jefferies likes where the company is positioned:

We see Lithia Motors as best positioned in an environment of increasing EV penetration as the company’s strong history in ICE parts and service operations (10% of sales, 32% of gross profit) gives us confidence in a successful battery power electric vehicle (BEV) ramp, while simultaneously a larger share of vehicle service is likely to shift to better-capitalized franchised dealers regardless of powertrain technology. Additionally, we believe the company’s legacy store base in the rural West/ Northwest is less prone to see near-term BEV disruption from lower maintenance/ service spend, as longer travel distances and limited charging infrastructure are likely headwinds to regional BEV adoption. In “expansion markets,” in central/east and southern states, we expect LAD will continue to gain share as digital selling initiatives expand market penetration well beyond “traditional” stores’ reach. With a current growth goal to increase revenue from $13 billion (in 2020) to $50 billion in 2025, we see Lithia Motors aggressive M&A (acquired $7.5 billion in annualized sales in the trailing 12 months) and omnichannel sales initiatives bringing operating expertise and online selling reach to a national scale, likely at the expense of smaller incumbents.

Jefferies has a Buy rating and a $406 price target. The posted consensus target is $455.55, and Wednesday’s closing share price was $343.64.

Automotive Aftermarket

It makes sense that a leading auto parts supplier would be in the mix. O’Reilly Automotive Inc. (NASDAQ: ORLY) is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. The company sells its products to both DIY and professional service provider customers.

Its product line includes new and remanufactured automotive hard parts, such as alternators, starters, fuel pumps, water pumps, brake system components, batteries, belts, hoses, temperature control, chassis parts, driveline parts and engine parts; maintenance items, such as oil, antifreeze, fluids, filters, wiper blades, lighting, engine additives and appearance products; and accessories, such as floor mats, seat covers and truck accessories.

The analysts said this:

Within the aftermarket, we see O’Reilly Automotive as best positioned in an environment of increased EV penetration given the company’s best-in-class supply chain available to service increased DIFM (do-it-for-me) service volumes. We reiterate our view that any headwinds from increased EV penetration of SAAR are unlikely to impact automotive aftermarket parts distribution in the next 5-10 years, but note that a longer-term change in the composition of the U.S. PARC will have a material impact on the industry’s growth points of service. Notably, we believe that while EVs require less maintenance than traditional ICEs, there are even more significant challenges to performing DIY (do-it-yourself) repairs on an electrified powertrain. Therefore, we see successful execution in the commercial (DIFM/do-if-for-me) segment of the industry – long a company stronghold – as key to long-term share gains, while the retail (DIY/do it-yourself) segment likely experiences more gradual secular pressures.

The Jefferies Buy rating comes with a $600 price target. That $595 consensus target also compares with Wednesday’s close at $566.21.

These eight stocks offer investors various angles on playing the massive potential of the EV infrastructure and charging station growth. One thing is certain. It is not a question of if this will happen, and the real question is not even when, as it is underway. The biggest question remains just how fast the ramp-up will be. That may depend on how pricing for EVs, now and in the future, will be.

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