We recently published a list of 13 Most Promising EV Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Cummins Inc. (NYSE:CMI) stands against the other most promising EV stocks to buy according to hedge funds along with the industry outlook.
According to a September 13 report by S&P Global, the auto industry’s shift to electric vehicles (EVs) is accelerating, with 2026 seen as a pivotal year for adoption. By 2030, over 25% of new passenger cars sold are expected to be electric, as the transition away from internal combustion engines (ICE) gains momentum.
Major automakers are projected to produce over 70% of global EVs by 2030, up from just 10% in 2022. However, a few challenges remain, like range anxiety, especially for those without convenient charging options. Addressing these issues will require collaboration among automotive, utilities, government, and property owners, which could create a way for significant growth in vehicle electrification and potentially end the ICE era.
We discussed the market dynamics of the EV industry in our article, 11 Small Cap EV Stocks to Invest In. Here is an excerpt from the article:
“While the growth in the US and Europe is slowing down, China is picking up a significant pace and dominating the EV landscape. According to a World Economic Forum report, Chinese EVs are much cheaper than their Western counterparts, with an average price of $34,400, compared to $55,242 in the U.S. The price gap is driven by lower labor costs, favorable government subsidies, and more affordable battery sourcing.
Chinese automakers now produce more than half of the world’s EVs and are using their cost advantages to potentially dominate the global market. As Chinese brands gain scale and expertise, their competitive pricing could allow them to challenge Western automakers.”
The Electric Vehicle Shift and Its Economic Impact on Europe
While Europe saw significant adoption of EVs in the earlier years, it has seen a slowdown. According to an October 3 report by McKinsey, the growth of EVs in Europe poses both opportunities and challenges for the automotive industry, which currently contributes $1.9 trillion to the economy.
While electric mobility could add up to $300 billion in gross value added (GVA) by 2035, the industry could risk losing $400 billion if European OEMs’ global market share declines from 60% to 45%.
Key strategies for success include expanding the domestic battery supply chain, improving manufacturing capabilities, streamlining regulations, and investing in R&D and talent development. By proactively addressing these challenges, European OEMs can capitalize on the EV shift, generate new value, and secure the region’s economic future in the automotive sector.
Shifting Gears to the Inevitable Future of Electric Vehicles
In a CNBC interview, Young Liu, Chairman of Hon Hai Technology Group said that the future of the automotive industry will be dominated by electric vehicles, with hybrids playing a limited role due to advancements in battery technology. He made a note of current challenges such as charging times and range anxiety, but expects improvements in battery systems will eliminate the need for hybrids.
Liu outlined a path to profitability for EV companies based on three key strategies: “platformization, modularization, and standardization”. He believes these will help streamline operations and reduce the need for individual investments in proprietary platforms, which is a challenge for traditional manufacturers due to their existing structures.
Our Methodology
For this article, we used stock screeners and ETFs to identify over 40 companies with significant operations related to the EV industry. Next, we narrowed our list to 13 stocks most widely held by institutional investors. The most promising EV stocks are listed in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s Q2 database of 912 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A mechanic standing proudly in a factory floor surrounded by the engines the company produces.
Cummins Inc. (NYSE:CMI)
Number of Hedge Fund Holders: 38
Cummins Inc. (NYSE:CMI) is a power solution company headquartered in Indiana. The company operates through five segments that include Components, Engine, Distribution, Power Systems, and Accelera by Cummins.
The company offers a wide range of products, including diesel, natural gas, electric, and hybrid powertrains, in addition to powertrain components. It serves markets in North America, Europe, and Asia and provides important components for battery electric vehicles. These include batteries, hydrogen fuel cells, e-axles, traction drives, and electrolyzers, which are essential for the growing demand for clean energy solutions.
In May, Accelera by Cummins, the zero-emissions division of Cummins (NYSE:CMI), unveiled several new clean energy products at the 2024 Advanced Clean Transportation Expo. The innovations included upgraded hydrogen fuel cell engines (FCE300 and FCE150), a more efficient 14Xe eAxle, and the adaptable BP104E battery platform.
The fuel cells offer higher power density and durability, while the 14Xe eAxle increases torque and energy efficiency. The BP104E battery, using advanced lithium iron phosphate technology, offers superior performance and flexibility. These next-gen products are designed to accelerate the transition to zero-emissions transportation.
In July, the company announced a $150 million investment to advance battery electric vehicle component manufacturing at its Columbus Engine Plant in Indiana. The project, funded by a $75 million federal grant as part of the Inflation Reduction Act, will transform 360,000 square feet of manufacturing space to produce zero-emissions components and electric powertrains for Accelera.
The investment is expected to create approximately 250 jobs and is projected to reduce greenhouse gas emissions by 104 million metric tons of carbon dioxide by 2030.
On October 2, TipRanks reported that Morgan Stanley analyst Angel Castillo maintained a Buy rating for Cummins (NYSE:CMI) with a $341 price target. The analyst’s positive outlook is based on the company’s strong position in the backup power systems market, especially its service to major tech companies like Microsoft, Amazon, and Meta.
The company effectively combines generator manufacturing with installation and service, which shows solid pricing power and revenue growth. It ranks at 5 on our list of most promising EV stocks to buy.
Parnassus Investments stated the following regarding Cummins Inc. (NYSE:CMI) in its first quarter 2024 investor letter:
“Cummins Inc. (NYSE:CMI), a leader in diesel and alternative fuel engines and generators, guided to a shallower-than-expected downcycle in 2024. New rules from the Environmental Protection Agency are expected to drive higher demand for the company’s truck engines in the coming years.”
Overall CMI ranks 5th on our list of most promising EV stocks to buy according to hedge funds. While we acknowledge the potential of CMI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CMI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.