QIC Inside Investor Relations – Volume 38 – The movement of foreign capital in Taiwan EV industry

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It has been 14 years since Tesla’s first electric car, the Tesla Roadster, was introduce in 2008. The wave of EVs has swept through the global automotive industry and caused a shift in capital allocation in the capital market. Based on their solid foundation in the technology industry and machinery processing, Taiwanese companies have been successfully entering the EV supply chain. In this volume of Inside Investor Relations, we look at the changes in foreign institutional investors’holdings in Taiwan's EV concept stocks (41 companies including electrical motor, electronic control unit and battery) in the past five years.

Taiwan EV index has underperformed the TWSE Index in the past 5 years

First, we compare the performance of EV stocks index (which include 41 Taiwan EV-concept stocks) with the TWSE index, which can be divided into two main phases

(1) Global auto market correction period:

From 2017 to March 2020, the global auto market began to correct from its peak in 2017, with global new car sales declining for two consecutive years, causing Taiwan EV stocks to underperform TWSE Index by 27% (August 2018).

(2) Post-pandemic recovery period:

Since February 2020, the global new vehicle sales have been depressed by the pandemic, shipping disruptions, semiconductor supply and demand imbalance, and rising raw materials prices, which has widened the gap between Taiwan’s EV stock market performance and that of TWSE Index to 45% (September 2021).

EV sales has grown steadily from 2017 to 2021, 2021 Growth Hits 91% YoY.

It is worth noting that the global electrification of vehicles has not stopped. Global EV sales have been growing since 2017. But the market was sluggish in 2020 due to the outbreak of the pandemic In 2021, despite the spread of the pandemic, battery supply and chip shortages, overall EV sales continue to grow rapidly, with an annual increase of 91% mainly due to (1) stringent government emission regulations and a timeline for the retirement of fuel vehicles, (2) the development of more advanced electrical motors, electronic controls and batteries, which has boosted the range of new EVs beyond 600km, (3) increased EV models and a wider price range, making them more affordable. Looking ahead to the long-term trend after 2022, the overall automotive parts and components supply chain will continue to look positive as chip supply issues ease and electrification progresses beyond expectation. In Europe, the US and other major economies, the official set 2030 to 2040 ban on the sale of fuel vehicles, the future development of electric vehicles will continue to grow.

FINI holding value went down then rebounded; FINI holding percentage has been fluctuating

Next, let’s analyze the structure of foreign shareholders of Taiwan EV concept stocks. The proportion of foreign ownership in our selective 41 Taiwan EV concept stocks ranges from 42% to 46% in the past five years with a clear trend of increasing foreign ownership since 2018. From 2017 to 2021, foreign institutional investors, led by Vanguard, Blackrock and Norges Bank, have continued to invest in EV stocks. Looking at active funds as a percentage of total foreign holdings, we see that active funds’ holdings in Taiwan EV concepts have increased from 59% in 2017 to 66% in 2021. Considering the increase in global EV sales, the development of the automotive supply chain, and corporate initiatives to develop EV businesses, active funds are expected to become more aggressive in exploring small-to-medium-sized EV concept companies. During this period, we also found more European institutional investors investing in Taiwan EV stocks, including Silchester International Investors, Swedbank, Hermes Investment Management, and others. In addition to focusing on the trend of EV development and the growth of EV stocks, the ESG performance of potential investment target is also the focus of these European institutional investors’ investment evaluation. (Related article: Inside Investor Relations – Volume 8 – Should companies invest in ESG?)

We further analyzed the top three Taiwan EV stocks held by FINI investors in 2017 and 2021, including Delta Electronics, Asustek, Advantech, Quanta, Hota, Chroma and Sinbon. In terms of the increase in foreign ownership of the 41 EV stocks, the top three companies in terms of the increase in foreign ownership are Sinbon, Chroma and Thinking Electronic, with foreign ownership increasing by 13%, 7%, and 6%, respectively. If we look at the decrease in foreign ownership of the 41 EV concept stocks over the same period, the top three decreasing companies are TECO, Hota and Pegatron, with foreign ownership decreasing by 32%, 21%, and 19%, respectively. We found that the FINI holding percentage of some well-known EV related companies including TECO, Hota, Bizlink, Taiwan Semiconductor, Hu Lane, have all declined over the past five years. We believe the reasons for this include the early presence of these top performers in the EV industry, the decline of global vehicle sales, the penetration and contribution EVs, and the decline in their non-EV business, which has led to a decline in foreign ownership.

Summary

Although Taiwan's EV index has underperformed the TWSE index over the past five years, we find that in addition to the 41 Taiwan EV concept stocks, more and more companies in Taiwan are deploying various strategies in the EV industry chain, including semiconductors, automotive software and charging infrastructure. We believe that Taiwan's EV concept stocks will continue to grow, and FINI investors will continue to proactively discover hidden gems and rising stars within the Taiwan EV sector. We encourage quality Taiwanese companies with forward-thinking strategy and strong product vision to contact QIC, as we will strive to introduce more outstanding companies to international institutional investors.

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Contact: Yvonne Huang yvonnehuang@qtumic.com