Tesla is under pressure from NIO, but these are the best electric-vehicle investments right now, says UBS

“Our key concern shorter-term is that Tesla’s demand momentum in China is slowing, and our checks on the ground suggest that BEVs [Battery Electric Vehicles] from domestic brands are gaining further ground vs. Tesla, which may trigger additional pricing action by Tesla and consequently lower gross margins,” analyst Patrick Hummel said.

“The EV launches from competitors with high range, charging performance and attractive value-for-money, could continue to weigh on the value the market is willing to assign to Tesla’s long-term growth,” Hummel added.

In China, the pioneering electric-vehicle company led by Elon Musk faces stiff competition from domestic manufacturers like NIO NIO, +0.47%, BYD 1211, +0.77%, and XPeng XPEV, -0.84%, which all show strong positive momentum, UBS said.

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Now that most of the major automakers have decided to go all-in on electric-vehicles, with ambitious targets for new product lines a recurring theme among the world’s largest car companies, UBS identifies four factors likely to drive outperformance in auto stocks.

They are: a strong EV sales curve, a crystallized portfolio value, excellent regional and segmental exposure, and an ability to pass on higher commodity prices.

Using these factors, the analysts at UBS found that Volkswagen XE:VOW, the EV leader in Europe and Tesla’s fiercest competitor, and GM GM scored best.

UBS raised its target price for GM stock—which it rates a buy—to $79 from $75, with the target price for Volkswagen being €300 ($357). GM stock is currently trading around $59, while shares in Volkswagen were trading for more than €216—implying that both companies could provide attractive returns to investors.

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South Korea’s Hyundai 005380, -0.62% is another company that could emerge as one of the best re-rating stories as the market comes to realize the value of its assets, UBS said. France’s Renault RNO, +1.12% and China’s Li Auto LI, +0.93% rounded out the list of UBS’ five most-favoured EV stocks. The bank also raised its target price on Ford F, +0.03%, which it rates neutral, to $16 from $13.

The team at UBS took a hard look at the industry landscape in the wake of its latest electric-vehicle consumer survey, involving more than 11,000 participants in the world’s largest EV markets. The results show that “EV  mass  adoption  is  an  unstoppable  trend  with  rapidly  accelerating  momentum,” the team concluded, with 43% of consumers likely to consider buying a fully-electric car—up from 37% a year ago.

For the first time, fully-electric vehicles are preferred over plug-in hybrids, with keenness for EVs accelerating fastest among American consumers, UBS said. In the wake of the survey, UBS raised its sales forecast for China to 2.5 million EVs in 2021, up from 1.9 million, with a view that EVs will make up 20% of the car market globally by 2025 and 50% by 2030.

Tesla is still the “undisputed leader” in UBS’ books. The recent consumer survey was “solid across the board for Tesla,” Hummel said, though “momentum  in  the   quarters   ahead   is   likely   more   in   favor   of   competitors with a busier launch pipeline.” In conclusion: Tesla’s lead is shrinking, and investors would be well advised to seek out other opportunities for high-growth plays.