Investors will remember 2020 for a number of reasons, not least among them stomach-churning volatility levels, but perhaps best for the stellar market rise of electric vehicle (EV) companies. Most would have to concur that EV businesses and their related industries such as battery technology, clean energy and autonomous driving, are here to not only stay, but thrive in the new decade.
According to recent academic research, “The car is still the most common mode of transport in Western countries, particularly so across the European Union, as it accounts for about two-thirds of daily commuting… Electric vehicles have the potential to improve the efficiency, affordability, and sustainability of the transport system.”
Investors seem to agree with this analysis as they have recently been betting on especially the future profitability of many names in the EV space. Shares of many companies are at record highs. Industry analysts highlight, “With increased supply of electric and plug-in hybrid cars, plus new models being launched with increasing regularity, the increasing trends are only going to accelerate over the course of the next few months.”
Finally, a recent report by McKinsey suggests, “Key EV markets suggest shifting regional dynamics, with China and the United States losing ground to Europe. EV sales remained constant in China in 2019, at around 1.2 million units sold (a 3 percent increase from the previous year). In the United States, EV sales dropped by 12 percent in 2019, with only 320,000 units sold. Meanwhile, sales in Europe rose by 44 percent, to reach 590,000 units. These trends continued in first-quarter 2020.”
Here are 7 robust EV stocks to buy making big moves beyond cars:
EV Stocks To Buy: Amplify Lithium & Battery Technology ETF (BATT)
52-Week Range: $5.91-11.54
Year-to-date (YTD) change: Up 28.90%
Dividend Yield: 4.99%
Expense Ratio: 0.72%
Our first choice today is an exchange-traded fund (ETF), namely the Amplify Lithium & Battery Technology ETF. This fund provides access to businesses manufacturing or using lithium battery technology. Such firms may manufacture battery metals and materials and offer battery storage solutions, or could also be EV companies that use batteries in their cars.
BATT, which has 73 holdings and started trading in 2016, tracks the EQM Lithium & Battery Technology Index. In terms of sectoral breakdown, Materials (46.2%) lead the list, followed by Automobiles & Components (24.2%), Capital Goods (15.6%) and Technology Hardware & Equipment (6.1%).
The top ten names in BATT comprise around 45% of net assets of $29 million. Global resources group BHP (NYSE:BHP), EV darling Tesla (NASDAQ:TSLA), China-based battery system provider Contemporary Amperex Technology and EV manufacturer Byd (OTCMKTS:BYDDY) lead the names in the fund.
Investors in the young fund have had a great year in 2020 as BATT hit a record-high in early December. Long-term investors could consider buying the dips in the fund, as it provides diversified exposure both sector-wise and geographically.
CIIG Merger (CIIC)
52-Week range: $9.30 – $37.18
YTD change: Up 204.7%
In addition to the rise of EVs, 2020 has also been a banner year for private businesses going public via reverse mergers with special purpose acquisition companies (SPACs). And our next choice, CIIG Merger, also falls into the SPAC category. Earlier in November, the U.K.-based privately-held Arrival announced its upcoming reverse-merger with CIIC.
Over the past five years, Arrival has been producing electric vans and buses for commercial and municipal buyers. The new merger values Arrival at over $5 billion. According to the company, the “forecasted market for vans and buses [will] total $430B by 2025.”
Although this deal is still in its early days, we would encourage readers to keep the stock on their radar. Investing in SPACs can be volatile, yet profitable, as recent instances have shown.
InvestorPlace.com readers are likely familiar with other recent SPAC stocks, including DraftKings (NASDAQ:DKNG), Hyliion (NYSE:HYLN), Nikola (NASDAQ:NKLA), Switchback Energy (NYSE:SBE) and Workhorse (NASDAQ:WKHS), among others.
General Motors (GM)
52-Week range: $14.33 – $46.71
YTD change: Up 14.54%
Auto giant General Motors, whose history goes back to 1908, needs little introduction. According to the recent Q3 earnings report, the iconic car maker has “continued to invest in its electric vehicle and autonomous vehicle growth initiatives.” Investors were pleased to see revenues of $35.48 billion and net income of $4.05 billion.
The company is also a partner in “Cruise,” the autonomous driving entity. Other partners include Softbank (OTCMKTS:SFTBY) and Honda (NYSE:HMC). Given its strong history, General Motors is likely to become a leading name in the EV space.
GM has also been in the news in recent months as management withdrew its offer to buy an equity stake in Nikola, which has come under stress following the resignation of founder and ex-CEO Trevor Milton. Although Nikola shareholders aren’t happy that the proposed strategic partnership is off the table, investors in GM are possibly feeling relieved.
So far in 2020, GM stock is up almost 15%. Its forward P/E , P/S and P/B ratios stand at 6.83, 0.52, and 1.38, respectively. In the case of a decline below $40, the shares would offer better long-term value.
KraneShares Electric Vehicles and Future Mobility Index ETF (KARS)
52-Week Range: $15.39-40.59
YTD change: 58.62%
Dividend Yield: 1.16%
Expense Ratio: 0.72%
The KraneShares Electric Vehicles and Future Mobility Index ETF gives access to global EV manufacturers firms engaged in autonomous driving technologies, lithium and copper production, battery manufacturing and alternative energy companies (such as those involved in hydrogen fuel cells).
KARS, which has 60 holdings, tracks the Solactive Electric Vehicles and Future Mobility Index. The fund started trading in January 2018 and has close to $77 million under management.
In terms of sectors represented in the fund, Technology tops the list (36.6%), followed by Consumer Goods (33.9%), Industrials (11.3%), Basic Materials (9.6%) and Oil & Gas (4.1). Top names constitute about 33% of assets.
In addition to EV manufacturers Tesla and Nio (NYSE:NIO), Analog Devices (NASDAQ:ADI), Daimler (OTCMKTS:DMLRY), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Infineon Technologies (OTCMKTS:IFNNY) and Advanced Micro Devices (NASDAQ:AMD) are some of the other leading names in this ETF.
The fund notched a new all-time high in late November. Potential profit-taking could pressure KARS toward the $33-$35 level, which would offer a better risk/return profile for long-term investors.
SPDR S&P Kensho New Economies Composite ETF (KOMP)
52-Week Range: $23.66 – $55.27
YTD change: 49.64%
Dividend Yield: 0.5%
Expense Ratio: 0.20%
Our next discussion also centers around an ETF that isn’t a pure play on EV stocks. Instead, the SPDR S&P Kensho New Economies Composite ETF gives exposure to a more diversified range of innovative global businesses (such as artificial intelligence, robotics, and automation) that may be appropriate for long-term portfolios. Many of the firms in the fund are also among the well-known names in the EV space.
With 391 holdings, KOMP is well diversified. The top sector allocations are Semiconductors (7.43), Application Software (7.29%), Automobile Manufacturers (6.74%), Electrical Components & Equipment (6.05%), Aerospace & Defense (5.73), Interactive Media & Services (5.18%) and Auto parts and Equipment (4.63).
The ETF started trading in late 2018 and has about $1.7 billion under management. Among the top names in KOMP are Nio, Pacific Biosciences of California (NASDAQ:PACB), Plug Power (NASDAQ:PLUG), Tesla, Sunrun (NASDAQ:RUN) and Workhorse (NASDAQ:WKHS).
Since the start of the year, the fund has returned close to 50% and hit a record-high in early December. I believe the names in the fund are likely to create shareholder value for many years to come.
52-Week range: $49.11 – $95.82
YTD change: Up 8.05%
Dividend yield: 1.49%
Bellevue, Washington-based Paccar manufactures light-, medium- and heavy-duty trucks under the Kenworth, Peterbilt and DAF brands. The group also designs diesel engines and provides truck parts related to its principal business.
Over the past several quarters, Paccar has been updating the industry about its EV efforts. For example, in 2019, it introduced “three zero emission vehicles: a battery-electric Peterbilt Model 579EV; a battery-electric Peterbilt Model 220EV; and a hydrogen fuel cell electric Kenworth T680 developed in collaboration with” Toyota Motor (NYSE:TM).
Earlier in the year, CEO Preston Feight said:
“To date, we have deployed over 60 battery-electric, hybrid and hydrogen-powered trucks. DAF (Paccar’s European truck builder,) Peterbilt and Kenworth have battery electric vehicles operating in North America and Europe… Paccar will begin the production of battery-electric trucks next year. Volumes are expected to grow gradually as the cost of batteries decreases, charging infrastructure is expanded and regulations drive customer adoption of these technologies.”
Paccar released its Q3 earnings report in late October. Revenue came at $4.94 billion, a decline of 22% compared to $6.37 billion in 2019. Net income was $385.5 million, also down by 36.5%. Diluted EPS was $1.11, compared to $1.75 in Q3 2019.
Despite the subdued quarterly results, senior vice president Darrin Siver noted improvements in North America, saying, “U.S. and Canada Class 8 truck industry orders through September were 18% higher than in the same period last year.”
PCAR stock’s forward P/E and P/S ratios are 16.86 and 1.55, respectively. Potential shareholders may regard any upcoming decline in price to buy into the shares of this well-established manufacturer that could also become an important EV player.
52-Week Range: $17.11 – $74.49
YTD change (since late August): Up 115.5%
China-headquartered Xpeng became a publicly traded company in late August. But its history goes back to 2015, when it was founded by a group of entrepreneurs, including former Alibaba executive He Xiaopeng and auto-industry veteran Xia Heng. China is the world’s largest EV market, with around 2.5 million electric vehicles in use.
In November, XPEV announced Q3 earnings metrics. Revenues came at $293.1 million, an increase of 342.5% YoY. However, non-GAAP net loss was $127.4 million, 15% higher than Q3 2019.
CEO He Xiaopeng said:
“Looking ahead, XPeng will continue to capitalize on its core strengths in technology, while heightening sales and marketing efforts, further enhancing manufacturing capability, and developing our global strategy.”
Investors who predict growth for EVs, especially in China, can buy into XPENG shares below $40 and expect to hold them for several years. However, as a young company, the stock is likely to be choppy, especially around earnings release dates. Thus short-term traders should proceed with caution.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation and publishes educational content on investing.