Utilities as Undervalued Long-Term Growth Plays in the EV Transition

The global transition to electric vehicles (EVs) is reshaping energy demand, infrastructure, and market dynamics. At the heart of this transformation lies the utility sector, which is not only adapting to the surge in electricity demand but also strategically positioning itself to capitalize on the opportunities presented by the EV revolution. While some investors remain cautious about the sector's valuations, a closer examination reveals that utilities are undervalued long-term growth plays, particularly as they navigate grid modernization, renewable integration, and the need for scalable EV infrastructure.

Strategic Positioning: Grid Modernization and EV Infrastructure

The EV transition is accelerating the need for grid modernization, with utilities at the forefront of this effort. As of 2024, the U.S. had deployed 204,000 public and workplace EV chargers, with annual growth rates of 25% since 2019. This trajectory aligns with the projected 58 million charge points by 2040, driven by 92 million EVs on U.S. roads. To meet this demand, utilities are investing heavily in both infrastructure and technology. For instance, public announcements include plans for 164,000 new DC fast chargers and 1.5 million Level 2 chargers, addressing a critical gap in the infrastructure needed by 2030.

Beyond charging stations, utilities are modernizing grids to handle decentralized energy resources (DERs), dynamic load management, and the integration of renewable energy. The U.S. Department of Energy's Grid Modernization Initiative is a cornerstone of these efforts, fostering innovations like virtual power plants (VPPs), dynamic line rating systems, and grid-scale storage.

These technologies are essential for balancing peak demand-particularly as EV charging overlaps with periods of high electricity use-and for aligning EV adoption with renewable energy availability, as seen in California's solar-centric grid strategies.

Market Correction Opportunities: Valuation Gaps and Sector Resilience

Despite the sector's strategic investments, utility stocks in 2025 trade at forward P/E ratios of 18.5x, near historical averages of 15x. This premium reflects optimism about AI-driven energy demand and data-center growth but also suggests potential overvaluation in some cases. However, the sector's defensive characteristics-stable cash flows, high dividend yields, and regulatory support-position it as a resilient long-term play. For example, Dominion Energy and Duke Energy are investing $50 billion and $87 billion, respectively, through 2029 to meet surging demand in regions like Virginia and Florida. These capital-intensive projects are expected to drive earnings growth of 5%-8% annually, even as challenges like regulatory hurdles and supply chain constraints persist.

Undervaluation metrics further highlight opportunities. Edison International (EIX) trades at a 28% discount to its fair value estimate of $80 per share, while PG&E Corporation (PCG) is undervalued by 192.9% based on intrinsic value calculations. These metrics, combined with low EV-to-EBITDA ratios and strong free cash flow yields, suggest that certain utilities are poised for correction as the EV transition gains momentum.

Balancing Risks and Rewards

The sector is not without risks. High debt levels, regulatory uncertainty, and the physical vulnerabilities of aging infrastructure remain concerns. For instance, Dominion Energy's debt-to-equity ratio could constrain its financial flexibility, while natural disasters like wildfires and hurricanes pose operational risks. However, these challenges are being mitigated by robust M&A activity, with megadeals exceeding $41 billion in 2025 focused on grid resilience and dispatchable power.

Moreover, the integration of renewable energy-particularly solar-is reshaping the sector's growth profile. Solar is projected to account for half of U.S. renewable energy by 2032, driven by falling costs and state-level policies. Utilities like NextEra Energy and Constellation Energy are leveraging this trend, with earnings growth targets of 6%-10% annually through 2028.

Conclusion: A Compelling Investment Case

The EV transition is not merely a technological shift but a structural reconfiguration of energy systems. Utilities are uniquely positioned to benefit, as their investments in grid modernization and EV infrastructure align with long-term secular trends. While some stocks trade at premiums, others are undervalued, offering attractive entry points for investors who recognize the sector's resilience and growth potential. As the grid evolves to accommodate 92 million EVs and surging data-center demand, utilities that prioritize innovation, regulatory agility, and customer-centric strategies will emerge as key beneficiaries of this transformation.