European Electric Vehicle Industry Overview
The Paris Climate Agreement of 2016, aimed to curb greenhouse gas emissions to limit global temperature increase this century to 2 degrees Celsius. 194 parties are legally bound by the treaty and will review compliance later this year: What does this mean for automotive manufacturers? Increasing government pressure to manufacture electric vehicles.
According to the EU, in 2021 transportation accounted for 20.2% of global CO2 emissions. Additionally, in June 2022 the European Parliament mandated that all new cars should be zero-emission by 2035. This provides a compelling catalyst for major automotive manufacturers to increase electric vehicle manufacturing.
The electric mobility market is projected to reach $1.4T USD by 2027 and European consumers are driving this growth. Europe became the leading market for plug in electric vehicles (PEVs) with a 66% increase in new PEV registrations between 2020-21. Tesla is the current market leader, followed by Fiat and Volkswagen. Volkswagen made headlines this past week when European think-tank Carbon Market Watch published a report deeming their 2026 net-zero goal “low-integrity.” The implication is that VW has been misleading consumers and has a low chance of reaching net-zero by 2026. This news emphasizes the volatility of the current EV market and proves that no market leader is currently set in stone.
The size and growth prospects of the European EV market raise the question of who will emerge as consistent market leaders. I am particularly interested in the emergence of luxury electric vehicles made by manufacturers such as Aston Martin, Porsche, Mercedes, and Ferrari. All manufacturers are being legally compelled to produce electric vehicles. Which luxury manufacturer will rise to the top of this new market?
Aston Martin (LON: AML.L) is currently the largest position in my portfolio and is producing ~10.7% in return. Aston will launch its first all-electric vehicle in 2025, and its first plug-in hybrid in 2024. The hybrid model will be the 937-hp Valhalla, and all Aston models will have an electric drivetrain option by 2026 (including the DBX SUV). Ferrari and Lamborghini have similar plans to start production of EVs. Competitors Porsche and Mercedes already have electric vehicles on the market. Considering the 2022 European Parliament decision, the race to market leader in the electric luxury car market is key: electric vehicles are the future of automotives.
Without being able to forecast the next decade of EV sales, I know this: Aston Martin remains an attractive and high value investment. Aston’s product is very good and can be closely compared to Ferrari (MIL: RACE). RACE is currently trading for 9.0X Price/Sales and Aston trades for 0.5X Price/Sales. This highlights the huge existing upside opportunity. Aston is being overlooked by investors, because Aston has yet to mature as a public company (IPO 2018). The company is still using upward of £250M cash each year in investing activities.
Considering TTM gross profit is £408M; large capex suggests a huge growth focus that has been made possible by additional debt and equity issuance. As Aston matures, it will reduce investing activities, improve working capital levels, and ultimately reach positive free cash flow. As these things occur, AML.L will rise in value to mirror multiples seen by RACE. Additionally, the success of Aston’s Valhalla and their future full EV model represent huge potential growth catalysts. AML.L makes sense as a long-term hold in my portfolio, because of promising relative valuation, positive EV tailwinds and an excellent high-end product.