How to play a possible global electric vehicle meltdown, according to Deutsche Bank

Published Tue, Oct 31 20232:17 PM EDTUpdated Tue, Oct 31 20233:42 PM EDT

Concerns of a global electric vehicle market meltdown are starting to take hold, raising concern over the prospects of certain companies in the space, according to Deutsche Bank. Citing conversations with one battery supplier, head of research Tim Rokossa said production timelines in the U.S. and Europe are 30% to 50% below output goals for mass and premium markets. These concerns have weighed on original equipment auto manufacturers such as General Motors and Ford Motor , according to Rokossa. Earlier this month , GM and Honda cancelled plans to co-develop EVs that would cost less than $30,000. Ford, meanwhile, delayed a $12 billion investment in electric vehicles . The analyst thinks these worries could lead to deeper losses for the automakers going forward. "While Ford and GM's move to adjust production plans to lower demand and save capital are pragmatically positive for margins and FCF in the short-term, they also raise deeper concerns around their ability to make a successful transition to EV longer term and terminal value," Rokossa and several analysts wrote in a Tuesday note. These two names could see further pressure due to "vehicle price moderation." "But investors have also penalized EV-exposed supplier stocks, reflecting concerns around the health of their backlog and risk to their growth profile, which could impact earnings estimates and trading multiples," the analysts added. Against this backdrop, Deutsche Bank laid out which companies it thinks can pull through despite the growing overhangs around the space. U.S. playbook Deutsche Bank analysts have "limited interest in legacy OEMs, even on pullback and post-strike." But, the bank highlighted Tesla as one of the names it remains positive on. "We view Tesla as better positioned in the long term, benefitting from a cost base enabling it to sell vehicles profitably at lower price point than much of the competition; and especially so if it successfully develops and produces next-gen vehicles at half the current [cost of goods sold]," Deutsche Bank said. To be sure, the bank thinks weakening electric vehicle demand, price risk and "aging models'" present near-term downside risks to Tesla's 2024 consensus volume and earnings expectations. The bank also gave its picks for U.S. electric vehicle suppliers, favoring agnostic powertrain suppliers with growth and content, mostly independent electric vehicle and internal combustion engine volumes. Self-driving tech company Mobileye is expected to see upside over the next six months as it announces some key wins from negotiations with some global OEMs, per Rokossa. Automotive supplier BorgWarner could also benefit from the current electric vehicle environment due to its primary exposure in the Chinese market, he added. A "slower electric vehicle adoption curve" could also help the company's margins, the analyst added. "Beyond this, once EV-exposed companies start openly quantifying their risk from EV slowdown, investors may be ready to start getting more constructive on some of these names, especially when their stock de-rating seems overdone compared to the magnitude of slower growth," Deutsche Bank said. China and Europe In Europe, the bank thinks BMW will see relative strength thanks to its success with EVs and its flexible production strategy, which enables it to "flex" production to fit market trends. Meanwhile, China remains a bright spot in the EV adoption movement, according to Rokossa. Deutsche Bank has a top pick rating on XPeng , citing its "compelling growth and margin improvement roadmap underpinned by deep partnerships with VW and Didi." XPeng announced earlier in October that it plans to release driver-assist technology in Europe by the end of 2024, and is on track to expand the technology to 50 cities in China by year-end. — CNBC's Michael Bloom contributed to this report.