The Election Could Have Consequences for Tesla and Other Car Stocks - Barron's

The outcome of the 2020 election could have far reaching implications for the automotive sector, according to Wall Street analysts.

The Street expects Tesla (ticker: TSLA), for instance, to benefit from an increase in electric vehicle adoption under a Democratic sweep. If Trump wins reelection, analysts believe Tesla investors could see a small dip. It could also results in a slight decrease for other, small capitalization stocks that aren’t profitable and would benefit from more federal government support could be greater.

Looking ahead, by a day or two, there are several automotive stocks investors should consider under different scenarios—and even some car stocks to avoid.

“Autos is a very macro and politically sensitive group and the policies of the two candidates have different implications for autos,” wrote RBC analyst Joseph Spak in a Monday research report. For cars and car policy, the candidates appear more polarized than usual.

Baird’s Luke Junk agrees, writing Tuesday that “elections have consequences.” He doesn’t see much changing for the industry under a second term for President Trump. He does see more significant changes occurring in a Blue Wave scenario where the Democrats take control of the Senate, House and the executive branch of government.

A Blue Wave could be good for EV adoption, according to Junk. He notes that the U.S. lags behind European and Chinese adoption of electric vehicles and Vice President Biden promises to invest in U.S. EV infrastructure.

Tesla would benefit in that scenario, but so would Aptiv (APTV), BorgWarner (BWA), TE Connectivity (TEL), Littelfuse (LFUS) and Visteon (VC). All five of those companies sell more parts on an EV model than on a gasoline-powered vehicle. Junk rates all five stocks the equivalent of Buy.

On the other hand, corporate taxes are likely to go up under a Biden presidency, hurting companies with U.S. profits. Junk says that disproportionately impacts Allison Transmission (ALSN), Snap-On (SNA) and Gentex (GNTX). Junk rates Allison and Snap-On Hold, but still has a Buy rating on Gentex, despite the potential tax headwind.

Spak, like Junk, sees a Blue Wave as a more significant outcome for the car universe. He believes Aptiv and Tesla are well positioned for a Biden presidency, but adds heavy duty truck maker Nikola (NKLA), auto parts supplier Lear (LEA) along with General Motors (GM) as other beneficiaries. GM is making a big push, for a traditional auto maker, into EVs.

What’s more, Spak believes Ford Motor (F) and Harley-Davidson (HOG) could be hurt by a Blue Wave as they lag behind peers in electrification technology, according to the analyst.

Spak rates GM, Aptiv and Lear shares Buy. He rates Nikola, Ford and Harley stocks Hold. He rates Tesla stock Sell. Even though Tesla is well positioned, Spak appears to quibble about the company’s valuation. Tesla trades for roughly 100 times estimates 2021 earnings. Other car makers don’t trade anywhere near that multiple. Tesla grows far faster than its traditional automotive peers.

The election, for many Wall Street analysts, appears to be about the pace of EV adoption, not whether or not EVs will be adopted. The success of Tesla in 2020, along with statements from GM and policy changes in China, have helped to convince investors that EVs have a bright future.

Now investors just need to decide what to pay for new EV stocks and older, traditional auto players.

EV shares have had an incredible run, up roughly 365% year to date. On election day, EV stocks were up about 4% on average, better than the 2% and 1.8% respective gains of the Dow Jones Industrial Average and S&P 500.

Write to Al Root at allen.root@dowjones.com

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