* Automakers spend heavily to adapt factories
* Investors see net sales boost for parts makers from EV
* Some go higher up supply chain to lithium, hydrogen tech
By Kit Rees
LONDON, March 7 (Reuters) - As carmakers ramp up spending onself-driving and electric vehicles (EVs), many investors arebetting their component suppliers will be the first winners fromthe technology shifts.
Asked how they are positioning for the changes, investorsinterviewed by Reuters more often mentioned suppliers like Aptiv APTV.N , Valeo VLOF.PA and Continental CONG.DE than the bigcar brands building them such as Volkswagen VOWG_p.DE , Daimler DAIGn.DE and Peugeot PEUP.PA .
That partly reflects a long-term shift towards more complexvehicles where components makers are contributing an ever-largerproportion of a car's total value.
It is also an acknowledgement that the big innovations arehappening as much in the auto industry's scattered supply baseas in the design hubs of the big carmakers, also known asoriginal equipment manufacturers (OEMs).
"We ... feel the structural growth opportunities andvisibility in the suppliers is higher than for the OEMs wheremore uncertainties exist, debt is higher and margins/returnstypically lower," said Marcus Morris-Eyton, European equitiesportfolio manager at Allianz (DE:ALVG) GI.
His Allianz Continental European fund's main exposure to theEV trend is through German semiconductor maker Infineon IFXGn.DE , which represents 4.1 percent of the fund, along withtyres and parts supplier Continental.
Thomas Fitzgerald, associate fund manager at EdenTreeInvestment Management, also holds Infineon stock as anEV/autonomous cars play, as well as Swedish car safety equipmentmaker Autoliv ALIVsdb.ST and Aptiv APTV.N , the former Delphibusinesses now focused on networked EV architecture.
"Those companies providing technology which supports anautonomous, connected, shared and electric transportation systemare well positioned to experience heightened levels ofprofitable growth over the long term," said Fitzgerald.
While a European index of auto stocks .SXAP is down 1.3percent this year, that is less than the broader STOXX 600's .STOXX 5.1 percent drop and places it among the top-performingEuropean sectors so far in 2018.
For carmakers, the shift to EVs carries huge costs andrisks, with many slashing billions from their cost base to helpoffset the lower profitability of electric cars.
Even premium manufacturers with the highest profit marginsare bracing for some pain. Daimler says it will face asignificantly lower margin "in the beginning of the cycle".
'NET LOSERS'
With governments stepping up efforts to reduce pollution,carmakers plan to plough at least $90 billion globally into EVs,according to a Reuters analysis. of this has been driven by strict quotas that China,the world's largest auto market, has set for new-energy vehicles(NEVs) and which are coming into force in 2019.
"We have strongly increased our exposure to this theme as wenow believe that EVs are in a position to become competitive inless than five years," said Lyxor Asset Management's head ofglobal equities, Fabrice Theveneau.
He expects parts makers to sell more products to OEMs, whichhe believes will be "net losers" from the EV shift, losingmarket share to new competitors such as Tesla TSLA.O andfacing heavy costs to transform their industrial base.
Some investors are wary of the high valuation of manyEV-related tech stocks - Infineon rose 38 percent andSTMicroelectronics STM.MI 69 percent last year - before massadoption has even begun.
Lyxor's Theveneau instead favours tyremakers Continental,Pirelli PIRC.MI and Michelin MICP.PA as he expects demandfor premium tyres to pick up as the average EV will drivefurther than a conventional car.
He also owns shares in battery material miners Glencore GLEN.L , Eramet ERMT.PA and Covestro 1COV.DE as well asindustrial gas makers Linde LING.DE and Air Liquide AIRP.PA -- both plays that offer him an option on the success ofhydrogen cars, a rival technology to EV.
Theveneau still has carmakers Renault RENA.PA , Nissan 7201.T and Toyota 7203.T among his top picks. "It's a race:some of the market shares will change, you don't know who isgoing to win in the end."
Wesley Lebeau, who manages a disruption-themed fund atAmundi's CPR Asset Management, is also looking along the EVsupply chain. Umicore UMI.BR is one of his top 10 holdingsthanks to its dominant position in cathode materials used inautomotive batteries. Lebeau also has exposure to lithium minersSQM SQM_pb.SN in Chile and Orocobre ORE.AX in Australia.
Gavin Launder, senior portfolio manager in the activeequities team at Legal & General Investment Management, isstaying positive on the German automakers in particular, sayingthey will aim to claw back market share in premium EVs fromelectric car trailblazer Tesla.
He says the German car manufacturers tend to be betterfunded than rivals and have spent more on research anddevelopment over the years.
He holds a position in Daimler, which last month unveiled anew Mercedes-Benz A-Class with its own machine-learning andvoice recognition technology. pretty convinced that when Mercedes starts launchingelectric vehicles that look like Mercedes, that feel likeMercedes, they will have a decent place in the market," he said.
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