Demand for electric vehicles is expected to increase over the coming decades — and UBS has identified a theme for investors to capitalize on that electrification. UBS said the growing amount of electronic material within vehicles will lead to new supply chains, as automakers are working directly with semiconductor firms and new tech players. In particular, this increased electrification will have a profound impact on the powertrain – a key combination of components that makes power from the engine and transmits it to the wheels, UBS analysts led by David Lesne wrote in a July 20 report. According to UBS estimates, the traditional powertrain supply chain generates annual revenue of about 250 billion euros ($255 billion) by 2021, but is expected to see a boost to 150 billion euros by 2030 as production of battery electric powertrains ramps up. Top Stock Ideas With Powertrain Electrification garnering “enough” investor attention, UBS named its “most preferred” stocks to get in touch with the theme. One of the bank’s top picks is EV giant Tesla. The bank believes that the company has the potential to remain the “most successful” global EV manufacturer given its technology leadership and best battery supply chain management in the industry. According to UBS, Tesla is poised to expand its gross margin in the coming quarters and years, while delivering on its 50% volume growth guidance this year. Banks also likes Mercedes. It hopes the automaker will “master the electric transition in a highly profitable way.” UBS says the company’s earnings margin target is conservative at 12% to 14%, and expects its share price to rise further once the company continues to demonstrate competition in the high-end EV segment. Read more Wall Street is confident these stocks will do well this quarter — and Citi gives a 50% upside What’s in it for Goldman Sachs says the bear market is ‘not over yet,’ and explains why German automotive parts supplier Vitesco also listed UBS. Banks sees the company as “one of the few winners” in powertrain electrification, given its debut relative to its counterparts and its ability to supply the full spectrum of EV powertrain materials. The bank said that most of Vitesco’s transition from supplying to EV manufacturers has been completed and the company is now benefiting from one of the largest electrification product portfolios. Chinese battery maker Contemporary Amperex Technology (CATL) is another UBS favorite. The bank believes the company has the “capacity and ambition” to strengthen its technological edge and maintain its “excellent competitiveness” relative to its peers. “We expect CATL to maintain its leading position in the battery industry over the next 5-10 years, backed by solid R&D,” Lesne said. UBS also likes Taiwanese electronics maker Delta Electronics, which is ahead of peers in EV exposure given its strong product and customer portfolio. The bank estimates that EV sales will account for more than 10% of the company’s sales in 2025, up from the current 5% to 6%. EV Outlook In a research note released last month, UBS said it expects 2026 to be an “inflection point” for EVs, when the global EV market surpasses the combined market size of personal computers, smartphones and servers. “On our forecasts, internal combustion engine vehicle production growth will remain broadly stable until peaking in 2024, followed by an average annual decline of 15% by 2030. Meanwhile, the number of [battery electric vehicles] There should be a six-fold increase in production compared to 2021-30,” UBS added in its July 20 report.