With focus on cleaner energy and reduction in pollution, electric car demand, and as a result, electric car stocks, have gained traction in the last few years. The strong growth trend is likely to sustain in the coming decade.
Research suggests that between fiscal year 2020 and FY2027, the electric car market is likely to grow at a CAGR of 22.6%. Other research suggests that the electric vehicle market will grow at a CAGR of 21.1% between FY2019 and FY2030.
Clearly, global growth will remain above 20% in the coming decade and electric car stocks will likely benefit from this robust growth.
This column will discuss four electric car stocks that can deliver value. I will deep dive into the following names:
Electric Car Stocks: Tesla (TSLA)
Without a doubt, Tesla is the first name that comes to mind when talking about electric car stocks. TSLA stock has been on fire, skyrocketing by 518% in the last year. It’s likely the stock will witness some profit booking after the big rally. However, the stock is worth keeping in the radar and fresh exposure can be considered on any correction.
For the first quarter of 2020, the company reached positive GAAP net income for the first time ever. I believe that this might just be the beginning of value creation through higher profits and cash flows.
I want to point out that Tesla has a factor in United States and China. Further, the company’s factory in Berlin will be operational next year. Multiple manufacturing locations will lower costs related to transit. Additionally, as production capacity increases, cash flows are likely to swell. TSLA stock is potentially discounting higher cash flows in the years to come.
From a growth perspective, the company has Tesla Semi, Roadster, and Cybertruck in development. With launches in the coming years, the company has a bright top-line growth outlook.
Tesla is an innovator and is likely to remain ahead of peers in the electric car business. Corrections in the stock can be used to accumulate Tesla for the long-term.
The cash injection in Nio has provided a new life-line for the company, pushing NIO stock higher. I believe that Nio is well positioned to survive in China’s highly competitive electric cars market and the stock is worth holding.
Positive news has also been flowing for the company in terms of business growth. For Q2 2020, the company delivered 10,331 vehicles, which exceeded the guidance. Furthermore, the company delivered 3,740 vehicles in June 2020, which was a new monthly record.
Nio has already initiated a cost cutting program to arrest the cash burn. The growth in vehicle deliveries implies that EBITDA margin is likely to improve significantly in the coming quarters. This can keep the momentum positive for NIO stock.
With the cash injection providing the company with ample liquidity buffer, Nio is also on track for international expansion. Europe is one of the prospective markets for the company. Once the company expands beyond China, higher sales will translate into potential cash flow acceleration.
China will remain the key market for Nio, with the country having immense growth potential in the electric car market in the coming decade. The country is targeting 25% of new car sales to be EV by FY2025. If this target is achieved, Nio will be a major beneficiary.
Ford Motor Company (F)
After touching a low of $3.96 during the coronavirus-triggered market meltdown, F stock has been gradually moving higher. Currently, the stock trades at $6.64 and is attractive for long-term exposure.
I am bullish on Ford with the pick-up truck and SUV business doing well in the United States. Ford also remains Europe’s top commercial vehicle brand.
The second reason to be bullish on Ford is the company’s plans for the electric car segment. Specific to China, Ford has big plans that can be a game changer for the company.
To elaborate, Ford plans to launch 30 new models in China over three years. One-third of the models will be electric vehicles. If sales gain traction, F stock will continue to trend higher.
The pandemic is likely to delay launches. However, China is crawling back to normalcy and EV sales growth can be robust as the country has already extended EV tax breaks by two years. This will be positive for industry growth.
Nikola Corporation (NKLA)
Last on this list of electric car stocks is Nikola. For investors with a long-term investment horizon, NKLA stock is another interesting name in the electric car industry. I believe that gradual accumulation can be considered with the stock currently in a downtrend.
As an overview, Nikola Corporation is a manufacturer of hydrogen electric vehicles and electric vehicle drivetrains. With focus on innovation, the company’s BEV and FCEV trucks are likely to be top-line growth triggers in the next three to five years.
In terms of timeline, the company’s BEV truck is likely to begin production in Q1 2021. Further, the company’s FCEV truck production will commence in Q1 2023. Therefore, there is a time-lag before the company starts generating revenue.
Gradual accumulation of the stock during this period therefore makes sense instead of big exposure. However, there is no doubt that the company is an innovator and will create shareholder value in the coming years.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock-specific articles with focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.