Three Names Driving the Electric and Autonomous Vehicle Revolution

Electric vehicles (EVs) are on the road to dominate the automotive industry. Global EV sales are set to reach nearly 17 million by year’s end, representing 20% of all new car sales. This figure, which includes battery EVs and plug-in hybrid EVs, is projected to grow to 50% of car sales by 2035.¹

A confluence of factors is driving EV adoption. Consumer demand remains strong, with more than two in five Americans planning to purchase an EV as their next car², and EV-buying intent is even higher in China and Europe (up to 75% in certain regions). EVs are becoming more affordable, reaching price parity with gas-powered cars. Product offerings are expanding as more manufacturers enter the EV business. Advances in battery and vehicle technology are enhancing efficiency and performance. Charging infrastructure is improving. On the policy side, federal and state tax subsidies are encouraging consumers to buy EVs, while stricter mandates are propelling automakers to boost their investments in EVs.

Alongside the shift to EVs, we believe private vehicle ownership will be increasingly supplanted by driverless robotaxis powered by autonomous driving technology. Many vehicles already feature advanced driver assistance systems (ADAS) designed to improve the safety and reaction times of drivers through early warning and automation. The next step in the evolution of ADAS, we believe, is fully autonomous vehicles (AVs). By eliminating the need for human drivers, AVs promise reduced operational costs, enhanced safety, and greater service consistency. Although still in its infancy, we believe the AV/ADAS opportunity is potentially larger than the opportunity presented by EVs alone.

As EV and ADAS penetration within the automotive market shifts into high gear, compelling investment opportunities are emerging across the supply chain. We think key suppliers for EVs and battery makers – including semiconductor manufacturers, chemical and material processors, and metals and mining companies – present an attractive alternative to pure-play EV manufacturers, as many benefit from a diversified customer base and derive revenue from multiple industries.

Along the way to full electrification and automation, there will be many opportunities for long-term investors to get in at or near the starting gate. We believe the following three companies have exceptional potential.

Tesla is a leading EV manufacturer on a mission to accelerate the world’s transition to sustainable energy. Its products include an expanding lineup of EVs, advanced AI offerings such as autonomous driving features, and renewable energy generation and storage solutions.

The company has paved the way for greater EV adoption among both consumers and legacy gas-powered car companies, which in turn has boosted investments in the EV supply chain and battery production, leading to the development of more powerful and affordable batteries.

Competitive Advantages

• Its first-mover status in EV production at scale has allowed Tesla to develop a loyal customer base and strong brand synonymous with innovation, sustainability, and performance.
• Tesla’s vertically integrated manufacturing process creates efficiencies, shortens feedback loops, and reduces production costs.

• A unique dataset generated by millions of connected cars facilitates advancements in autonomous driving through AI, which requires vast, high-quality inputs. Tesla is also building a state-of-the-art data center to train models for AVs.

   

Indie is a fabless developer of automotive semiconductors for ADAS and connected car, user experience, and electrification applications.

Semiconductors are the building blocks of advanced automotive software and electronics, and with demand continuing to grow alongside EV and ADAS adoption, we think the outlook for providers like indie remains bright.

Competitive Advantages

• Indie’s customization capabilities enable solutions designed to meet unique customer needs. Its highly integrated, tailored platforms combine application-specific chips with sensor technologies such as photonics, radio frequency antennas, imaging, and ultrasound.

• With a $6.3 billion design win backlog—$4.6 billion of which is in ADAS applications—and major program ramps set for 2025, indie’s strong contracted visibility and revenue pipeline position it for durable growth, supported by deep customer relationships and strategic investments in next-gen technology.

   

AMG Critical Materials applies metallurgical-based technologies to provide solutions for energy and resource conservation.

The ramp up in EVs is driving the need for essential materials used to produce batteries, including lithium, cobalt, and nickel. We think this increasing demand positions suppliers like AMG for long-term growth.

Competitive Advantages

• AMG has a captive customer base secured through long-term contracts, ensuring stable demand and revenue visibility.
• The company’s commitment to sustainable practices and resource efficiency sets it apart. We believe the need to reduce hazardous waste and meet environmental regulations should continue to fuel demand for AMG’s services.
• AMG is advancing its production of lithium and building its own lithium hydroxide refining plant in Europe to produce higher value chemicals for the EV battery supply chain, which we think should lead to a better margin profile.

Baron Capital can provide exposure to the featured stocks through an investment in our Funds as follows (as of September 30, 2024):

• Tesla, Inc. – Baron Fifth Avenue Growth Fund – 3.3%, Baron Focused Growth Fund – 9.8%, Baron Global Advantage Fund – 1.0%, Baron Opportunity Fund – 4.5%, Baron Partners Fund – 33.4*%, Baron Technology Fund – 3.3%
• indie Semiconductor, Inc. – Baron Discovery Fund – 1.1%, Baron Global Advantage Fund – 0.7%, Baron Opportunity Fund – 1.2%, Baron Small Cap Fund – 0.4%; Baron Technology Fund – 0.9% 
• AMG Critical Materials N.V. – Baron International Growth Fund – 1.0% (as of September 30, 2024).

*% of Long Positions.

Baron Capital is a premier asset management firm focused exclusively on delivering growth equity investment solutions to institutions, financial advisors, and individual investors. Since its founding in 1982, Baron Capital has employed the same approach across all strategies: investing for the long term in secular growth businesses with durable competitive advantages, run by great management teams. With $43.4 billion in assets under management across 19 strategies as of September 30, 2024, Baron Capital prides itself on delivering the best solutions and outcomes for clients globally.