In recent years, demand for electric vehicles (EVs) has risen. It is estimated that this demand will only continue rising. I believe this is linked to the race to cut carbon emissions, which has gained major traction from governments around the world. One FTSE 250 stock that could benefit in the long-term is TI Fluid Systems (LSE:TIFS). Should I buy the shares?
Essential parts for EVs
TI Fluid Systems designs, manufactures, and sells fluid storage, delivery, and thermal management systems for automobiles. These parts and components are essential for all automobiles to help them operate successfully.
So what’s happening with TI Fluid Systems shares? Well, as I write, they’re trading for 128p. At this time last year, the stock was trading for 242. This is a 47% decline over a 12-month period. It is worth noting many FTSE stocks have pulled back in recent months due to economic volatility and the tragic events in Ukraine.
The bull and bear case
To start with some positives, I believe TI has some defensive capabilities. This is because its products are essential in all vehicles, not just EVs. Unless there is some cutting edge technology around the corner that means cars will no longer require fluid storage, transfer, or thermal management, its products should be needed for many years to come.
In addition to this, the EV boom could come at the perfect time for TI to help boost growth. Recent statistics showed that the EV market is a burgeoning one in the UK, and worldwide. According to the International Energy Agency, EV adoption has surged since the pandemic. Furthermore, there is a chance with EV adoption playing a major part, net zero emissions could be achieved by 2050.
Finally, at present, TI shares would boost my passive income stream through dividends. The current dividend yield stands at 1.7%. This is slightly less than the FTSE 250 average of 1.9%. I am aware that dividends are never guaranteed, however.
To the bear case of TI Fluid shares. Firstly, growth from the EV sector may be a long way off. This is because the EV market has been hampered by the semiconductor shortage. To provide some context, semiconductors are essential parts in EVs. Furthermore, EV adoption in developing countries is taking longer compared to developed countries. This is linked to higher costs of infrastructure and the price point of EVs.
Next, at present TI Fluid shares have come under pressure from macroeconomic headwinds. These include soaring inflation and the rising cost of materials. Higher materials costs for its operations could eat into profit margins which affect growth initiatives as well as shareholder returns.
A FTSE 250 stock I’m going to monitor
To summarise, I believe TI Fluid Systems is in a great position to benefit from the EV boom, as well as the current automobile market. Current headwinds, as well as issues in the EV market are putting me off, however.
Right now I am going to keep TI Fluid Systems on my watch list, and monitor the developments in each of the areas mentioned above. I may change my stance later, once I know more and see if any of the issues pushing the shares down begin to subside.
