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Demand for electric vehicles is set to explode over the next few decades – and UBS has identified a theme for investors to take advantage of this electrification. UBS said increasing amounts of electronic content in vehicles will lead to new supply chains as automakers increasingly work directly with semiconductor companies and new technology players. In particular, this increasing electrification will have a profound impact on the powertrain – a critical assembly of components that creates power from the engine and transmits it to the wheels, wrote the UBS analysts, led by David Lesne, in a July 20 report. The traditional powertrain supply chain generates annual revenues of about 250 billion euros ($255 billion) from 2021, according to UBS estimates, but is expected to grow by 150 billion euros from by 2030 as production of battery electric powertrains increases. Top stock ideas With electrification of the powertrain attracting “substantial” investor attention, UBS named its “most favored” stocks to gain exposure to the theme. One of the bank’s top picks is electric vehicle giant Tesla. The bank believes the company is likely to remain “the world’s most successful maker of electric vehicles,” given its technology leadership and the industry’s best battery supply chain management. Tesla is also on track to increase its gross margin in the coming quarters and years, while meeting its volume growth forecast of 50% this year, according to UBS. The bank also likes Mercedes. He expects the automaker to “master the electric transition in a very cost-effective way.” UBS says the company’s profit margin target of 12% to 14% is prudent and expects its share price to rise further once the company demonstrates its competitiveness in the electric vehicle segment top of the line. Read more Wall Street is confident these stocks will do well this quarter — and Citi gives a 50% hike BofA thinks we’re already in a recession — and says these stocks have what it takes to beat it Goldman Sachs says that the bear market is not over yet and explains why German automotive supplier Vitesco is also on UBS’s list. The bank sees the company as “one of the few winners” in powertrain electrification, given its lead over its peers and its ability to provide all EV powertrain content. The bank added that much of Vitesco’s transition from supplying traditional automakers to makers of electric vehicles has been completed and the company now enjoys one of the largest portfolios of electrification products. Chinese battery maker Contemporary Amperex Technology (CATL) is another UBS favorite. The bank believes that the company has “the capacity and the ambition” to strengthen its technological lead and maintain its “exceptional competitiveness” compared to its peers. “We expect CATL to maintain its leadership position in the battery industry over the next 5-10 years, supported by strong R&D,” Lesne said. UBS also likes Taiwanese electronics maker Delta Electronics, which it says is ahead of its peers in EV exposure, given its strong product and customer portfolio. The bank estimates that electric vehicle sales will account for more than 10% of company sales in 2025, up from the current 5% to 6%. In a research note published last month, UBS said it expects 2026 to be an “inflection point” for electric vehicles, when the global electric vehicle market will exceed the combined market size of electric vehicles. personal computers, smartphones and servers. “We forecast that growth in the production of internal combustion engine vehicles will be broadly stable until its peak in 2024, before declining by an average of 15% per year until 2030. At the same time, the number of [battery electric vehicles] product is expected to grow sixfold between 2021 and 2030,” UBS added in its July 20 report.