Electric vehicle stocks may have sold-off in recent days. But, the overall trend (the pivot away from fossil fuel-powered cars) remains in motion. Governments around the world are pushing for the end to internal combustion engine cars. Incumbent automakers like General Motors (NYSE:GM) are vowing to do the same.
This means big opportunity for the many early stage EV companies scaling up in this fast-growing industry. But, for other industries, it could spell trouble. And, I’m not just talking about big oil (integrated oil and gas companies).
For example, an end to gas-powered cars could mean the end of gas stations. With reduced demand for hydrocarbons, the midstream pipeline industry could take a hit as well. Oil prices may be climbing back above their pre-coronavirus levels. Yet, the coming decades could prove very challenging for this segment of the world economy. Beyond the oil patch, the rise of EVs could also be bad news for auto parts makers and retailers.
Admittedly, the rise of electric vehicle stocks doesn’t necessarily mean the end for these seven companies. But, the EV megatrend likely isn’t something they’re too happy about. They are:
- Advance Auto Parts (NYSE:AAP)
- Chevron (NYSE:CVX)
- Enbridge (NYSE:ENB)
- Getty Realty (NYSE:GTY)
- Marathon Petroleum (NYSE:MPC)
- Tenneco (NYSE:TEN)
- ExxonMobil (NYSE:XOM)
Threatened by Electric Vehicle Stocks: Advance Auto Parts (AAP)
Auto parts retailers like Advance Auto Parts have been resilient throughout the pandemic. But, while 2020’s headwinds would up being a tailwind for aftermarket parts companies, the long-term prospects for this company and its rivals may not be as bright as their respective share prices today suggest.
Sure, the aftermarket industry (auto parts makers, and auto parts retailers) understands it needs to “adapt or die.” But, even if they make the right moves, demand could still take a hit. Why? Electric vehicles may wind up needing fewer parts, and less maintenance. Also, as the technology behind cars advances, who’s to say we’ll be doing DIY maintenance and repairs in the EV era?
This long-term potential risk also extends to the other major stocks in this space. Think AutoZone (NYSE:AZO), as well as O’Reilly Automotive (NASDAQ:ORLY). As investors remain focused on near-term tailwinds, rather than long-term headwinds, the respective share prices of these companies may yet to factor in these aforementioned risks.
Sure, it’s not set in stone that the EV era will mean bad times for the largest players in this industry. But, it’s something to keep in mind, after this sector’s rapid recovery.
Chevron (CVX)
To most, the “rise of EVs” means the “end of oil.” This may be a simplistic conclusion, given the use of oil goes beyond just passenger cars. But, while it may not destroy century-old oil companies like Chevron, it certainly will have a negative impact in the decades ahead.
CVX stock has rebounded since the spring, doubling off its lows. As you may recall, the rapid outbreak of Covid-19 fueled plummeting demand for crude oil, sending futures prices to negative price levels. Yet, while investors may be again bullish on big oil, diving into this stock as it retraces its high water mark may not be worthwhile.
Why? Today’s crude oil prices may not last for long. As the rise in interest rates makes the U.S. dollar stronger, a continued pullback in oil prices could happen in the near-term. Also, positive vaccine news is again raising hopes the pandemic ends in 2021. This may mean investors are overestimating how quickly the oil and gas sector makes a full recovery.
Whether due to near-term (oil price pullback), or long-term (“end of oil”) risks, it may be wise to take your time with oil names like CVX stock.
Enbridge (ENB)
One of the largest publicly-traded pipeline owners, ENB stock has partially recovered, as oil demand continues to improve. But, while investors are cautiously diving back into this Canada-based midstream energy play, keep in mind midstream companies like this one face murkier prospects as we move toward the EV era.
On Feb. 8, our own Louis Navellier made the case why proposed changes by the Biden administration, along with still-low demand, could continue to make Enbridge stock an unappealing investment. As Navellier wrote, it’s demand, not price, that drives good times or bad times for pipeline companies (the industry’s “toll takers”).
Considering how demand is the keyword, the long-term effect of EVs on Enbridge and other pipelines could be even pronounced than with other old-school oil and gas plays. So, does that mean one should avoid the whole sector?
Not necessarily. Last fall, I discussed several midstream stocks that could make for great investments. For both dividends and potential appreciation. Yes, the election results last November weren’t friendly for pipeline stocks. But, as pessimism remains priced into the sector, you may find some diamonds in the rough.
Threatened by Electric Vehicle Stocks: Getty Realty (GTY)
You don’t really see the Getty gas station brand much anymore. But, this REIT (real estate investment trust), which took on the name when it acquired the trademark in the 1980s, is considered by many to be one of the more interesting niche REITs in the market.
As a Seeking Alpha contributor put it at the start of this year, GTY stock may not be a great value play. But, with its robust fundamentals, its definitely a high-quality play. However, its prospects don’t look so bright when you factor in the rise of EVs. How are Getty’s tenants going to pay rent if they depend on gasoline sales to pay it?
Unless they can convert to charging stations, it’s unclear what the future holds for gas stations. Just like big oil stocks, and pipeline stocks, investors may start to discount shares if the move to EVs happens on schedule. Or worse, if it happens sooner than even today’s electric vehicle aficionados predict.
Yet, this could also create opportunity for investors looking to enter the stock. EV-related concerns could push it down to discounted levels. The rise of EVs may not be good for Getty Realty in the long term. But, that doesn’t guarantee it’s all downhill from here when it comes to this stock.
Marathon Petroleum (MPC)
After discussing one of the major gas station REITS, let’s take a look at Marathon Petroleum. It may be selling its Speedway chain of gas stations to 7-Eleven’s parent company. But, even without its gas station, the rise of EVs threatens this company. Why? Vehicle electrification isn’t good for its main business (oil refining), either.
The full move from gas-powered to electric-powered may still be decades away. But, in the meantime, independent refiners like this company are also feeling pressure to decrease their carbon footprints. One would think that these concerns would really weigh down on MPC stock.
Like with other oil and gas sector stocks, shares plummeted when gasoline demand took a hit due to Covid-19. Yet, with the near term looking more promising, investors have mid up Marathon Petroleum shares back near pre-outbreak price levels. So, are investors being rational regarding this company’s valuation? Or, are they being short-sided, not taking into account the long-term risk of the push to go green?
I’ll admit current trends are more of a mixed bag than the beginning of the end for MPC stock. We are still far away from the point that all cars (and more importantly, commercial trucks) run on alternative energy rather than refined petroleum products. Yet, as investors continue to price this on its pending sale of Speedway, along with its overall pandemic recovery prospects, it may pay to wait until shares start pricing in the downside of the world “going green.”
Tenneco (TEN)
What does the rise of EVs mean for legacy auto parts makers? For some, EV mania has fueled a minor mania in their respective stock prices. A prime example is BorgWarner (NYSE:BWA). But, other names, like Tenneco, the prospect of EVs gaining critical mass brings both opportunity and risk.
When it comes to auto parts stocks threatened by electric vehicle stocks, TEN stock is in the in-between category. On one hand, vehicle electrification isn’t good for its powertrain unit, which it eventually plans to spin-off. On the other hand, as ratings agency Fitch discussed in a November rating of some of the company’s debt, other segments of the company could thrive in the immediate term.
Shares have bounced back from their pandemic-related losses. But, Tenneco stock was already performing poorly before Covid-19. The company’s debt problems (largely due to its 2018 purchase of Federal Mogul), drove the stock from more than $50 per share three years ago to prices similar to today’s (around $11 per share) in early 2020.
A pandemic recovery, coupled with cost-cutting measures, may finally help this stock make full comeback. But, with the potential of it losing more than winning from the EV megatrend, this may not in the cards for TEN stock. Yet, with a full turnaround still possible, keep this auto parts play on your radar.
Threatened by Electric Vehicle Stocks: ExxonMobil (XOM)
You can’t talk about the EVs disrupting big oil without talking about ExxonMobil stock. With the company’s struggles during the pandemic, and its refusal to even cut its dividend, it’s hard to see this company successfully adapting to a world less dependent on fossil fuels.
Yet, while this may make XOM stock a questionable long-term investment, in the near term shares (which have seen a solid rebound) could continue to trend higher. As Barron’s recently reported, the company’s March 3 investor day may fuel further interest in the venerable oil company.
With energy prices rising, the company may finally again have the cash flow to cover its dividend. Cuts to its exploration and production budget could also help to get its financial house in order. So, with shares at around $55 per share (up big from lows nearing $30 per share), is it worth it to jump into ExxonMobil this late in the game?
Even with the recovery on the heels of higher oil prices, XOM stock remains somewhat below prior-year price levels (between $65 per share and $70 per share). A lot hinges on crude oil prices continuing to climb. But, if the company can demonstrate it has a solid plan to fully get out of the rut it’s been in for several years, there may be further upside ahead in the near-term.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.
