How should investors play the clean energy sector with the passing of the major climate bill?
The climate bill will turbocharge the industry with $370B over 10 years. It includes something for nearly every part of the clean energy supply chain.
Here’s what Morningstar’s Electric Vehicle Committee Chair Seth Goldstein has to say about making plays in the space (full interview):
The bill should benefit the entire EV supply chain. He doesn’t expect much “incremental profit growth” from traditional carmakers — but expects suppliers to benefit.
Parts and material suppliers could “see profits materially grow higher over time.” This includes lithium, semiconductors or auto component companies.
Lithium Americas (NYSE:LAC) will be one of the biggest beneficiaries. Lithium is one of the key ingredients inside EV batteries, and Lithium Americas is developing the largest lithium mine in North America.
Auto-focused chipmakers like NXP Semiconductors (NASDAQ:NXPI) could profit. EVs need two to three times more semiconductor chips than traditional cars.
What about Tesla? Goldstein thinks Tesla (NASDAQ:TSLA) is “slightly overvalued,” and the stock has a fair value of $760. The company has become less reliant on Elon Musk, and now it’s “all about execution.”
What happens if we move into a global recession? Goldstein thinks the sector could be more resilient to others, and EV sales could stay flat or grow as more consumers convert over.
Stay away from battery makers. It’s a low profitability industry, and companies have little competitive advantage.
Avoid Toyota Motor (NYSE:TM). They’re late to the EV game.