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| By Jon Markman |
The race toward electric vehicles quickened last week as another of the world's largest automakers adopted a more reliable charging standard.
Last week, executives at General Motors (GM) announced its EVs will gain access to the Tesla (TSLA) superchargers, and starting in 2025, new EVs will be manufactured with the Tesla charging standard.
However, it’s not GM or Tesla that investors should be looking to buy because of this. It’s ON Semiconductor (ON). Let me explain.
Non-Tesla EV public charging in North America is a mess. The networks have been deployed from a hodgepodge of electric utilities and third-party companies with little incentive to innovate.
In too many cases, the physical chargers out in the field have legacy software issues and can’t connect to the network. Others simply do not work due to ancient hardware design. Overriding concerns about range anxiety coupled with infrastructure reliability has been a huge problem for traditional auto companies trying to transition their fleets to EVs.
A 2022 University of California study of 657 EV chargers in the San Francisco Bay area found that 22.7% had operational issues. Because of that …
The Tesla Supercharging Network Is
Heading Toward Ubiquitous Status in the U.S.
The Tesla Supercharging Network currently has 16,822 chargers operational through January, according to S&P Global. Plus, TSN is reliable. Tesla documentation claims that network uptime is 99.96%.
In May, Ford (F) CEO Jim Farley announced that all Ford EVs will gain access to the TSN using a converter, and starting in 2025, new Ford EVs would come standard with Tesla's plug design, which is the North American Charging Standard.
The NACS is also key to the agreement between GM and Tesla. GM’s CEO Marry Barra and Tesla CEO Elon Musk jointly announced Thursday on Twitter Spaces that GM will adopt that standard in 2025.
Investors were quick to punish third-party charging networks. Shares of ChargePoint Holdings (CHPT) and EVgo (EVGO) declined by 13.2% and 11.8%, respectively following the GM announcement. This knee-jerk reaction misses the point.
Public EV charging networks have never been a great way to invest in the EV transition.
The real opportunity for investors? The firms that make microelectronics and software needed to make public and non-public EV charging safer, faster and more convenient.
More importantly, investors are drastically underestimating the size of this opportunity because they are looking at EVs through the lens of internal combustion engine vehicles.
Most EV owners change at home. They rarely use public EV charging networks.
On Semiconductoris building a lucrative business supplying chips to all facets of clean energy, including infrastructure, EVs and EV charging stations.
The Phoenix-based company has become a major player in the production of silicon carbide, a key material for the next-generation power switching required for the transition to clean energy. In the interim, On Semi is reaping the benefits of earlier investment in the chips and components needed for the EV transition.
In May, the company reported that robust demand for power management systems and sensors continue to outpace supply.
Automotive revenue grew by 38% in Q1 as major customers continue to take the unusual step of coinvesting with On Semiconductor to grow the capacity of its chips and sensors. Others have extended existing contracts through 2029, as they clamor to secure the supply of components that they will need for future EVs and charger infrastructure.
The decision by executives at GM and Ford to partner with Tesla on the TSN and NACS will accelerate the adoption of EVs, growing On Semiconductor markets even faster. The prospect of more EV home chargers is another market that can’t be ignored.
I first started recommending On Semiconductor in October 2022 when shares were $65.38. Since then, the stock has risen to $89.02, representing a gain of 36.1%.
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Even with that advance, shares still trade at a modest 16.5x forward earnings and 4.7x sales. This is extremely inexpensive given gross margins of 46.8% and the potential of its clean energy franchise.
Investors should consider buying On Semiconductor into pullbacks.
Thanks for reading,
Jon D. Markman
P.S. If you’d like my tailored recommendations for companies that are disrupting and dominating their niches, join my Disruptors & Dominators service. Members are sitting on four triple-digit open gains, and two more positions are close to joining that elite level of potential profit.
