The European Union has unveiled one of the world’s most ambitious plans to tackle climate change in a program that is expected to cause significant changes across industries like energy and automobiles.
The European Commission—the executive branch of the 27-member bloc—plans for the region to become carbon neutral by 2050, cut carbon emissions by 55% by 2030, and effectively ban the sale of new gasoline-powered cars after 2035.
That puts the pedal to the metal for European automakers at a time when the industry is in the midst of a massive shift away from internal combustion engines towards electric-vehicles.
Europe was the world’s largest market for electric-vehicles in 2020, overtaking China but losing the top spot to the world’s most populous country in 2021. Last year, European governments introduced new incentives for consumers to buy electric while the European Union introduced severe penalties for automakers whose fleets didn’t meet new emissions targets, accelerating the transition towards EVs.
The 18 key European auto markets are expected to see a total of 1.05 million fully-electric—as opposed to hybrid—new registrations in 2021, according to automotive analyst Matthias Schmidt, the publisher of the European Electric Car Report. That should rise to 1.31 million in 2022, and approach the 2 million mark by 2024, Schmidt said. The 18 markets include 14 European Union states as well as the U.K., Norway, Iceland, and Switzerland.
The EU’s new plan, unveiled on Wednesday, still has a number of hurdles to overcome. It is expected to meet heavy resistance from industry lobbyists and environmental activists alike as it makes its way through parliament and individual member states. The proposals include tightening fleet emission targets for automakers and building one million charging points for cars along European roads by 2025.
Plug-in hybrid electric vehicles, a stepping stone to fully-electric cars, will be crucial for European auto manufacturers as they look to meet carbon emissions targets, Schmidt said. Currently, the plug-in vehicle market is dominated by the brands of Volkswagen VOW, +0.88% Group, enjoying 23% market share so far this year across the 18 European countries the analyst monitors. Volkswagen is followed by Stellantis’ STLA, -0.07% brands—which include Fiat, Chrysler, Peugeot, and Citroen—with 14%, and then Mercedes Benz-owner Daimler XE:DAI with 11%.
For analysts Luke Junk and Alex Barenklau of investment bank Berenberg, the EU’s plan represents an incremental positive for the electric-vehicle sector, and will accelerate broader trends that should see shares in at least eight companies benefit.
Berenberg’s favourite stock picks are auto electronics group Visteon VC, -1.85%, which makes cockpit displays, and auto parts group Aptiv APTV, -0.53%, which can supply twice as many parts to an EV as a gasoline-powered car. The investment bank’s target prices on these two stocks suggest that Visteon shares could surge 29% and Aptiv 11%.
Groups that Junk and Barenklau identify as having significant tailwinds from the EV trend are Amphenol APH, +0.29% and TE Connectivity TEL, +0.64% —which both make electronic connectors—as well as circuit protection manufacturer Littelfuse LFUS, -0.09%. Berenberg’s target prices predict that Amphenol and TE Connectivity shares could both climb near 6%, while Littelfuse stock may jump more than 18%.
More industry suppliers in the form of BorgWarner, Sensata Technologies, and Methode Electronics are all “value” stock picks from Berenberg. BorgWarner shares could have legs to climb more than 25% higher, according to Junk and Barenklau, while Sensata Technologies stock may rise near 20% and Methode Electronics more than 11%.
Dan Davidowitz, portfolio manager at Polen Capital, said in a presentation to investors he has added to his positions in both beleaguered tech stocks this quarter.
Jack Denton is a reporter with Barron’s Group in London. He writes about business and finance in Europe for Barron’s and MarketWatch, with a particular focus on companies and regulation in the tech, media, and telecoms sectors.