Climate change concerns have the world talking about affordable and clean energy. The increased adoption of electric vehicles is just one aspect of this drive toward a clean energy future. As such, EV stocks have taken center stage.
If we go by projections, the EV industry is likely to see strong growth. Not just for few years, but for the next few decades. It’s not surprising that EV stocks have grabbed the limelight. And I believe that they will be among the key portfolio catalysts in the coming years.
Let’s first look at one projection for the next decade which underscores my view that EV stocks will remain a key investment theme for the coming years. Global EV sales in 2020 were estimated at 2.5 million units. By 2030, that number is expected to surge to 31.1 million units.
Some EV stocks might look expensive in the near-term. However, the best part of the EV growth story is still to come. It follows that the best part of the stock upside might also be due in the next decade.
With this overview, let’s discuss seven EV stocks that are making headlines and worth consideration for your portfolio.
- Nio (NYSE:NIO)
- Tesla (NASDAQ:TSLA)
- XPeng (NYSE:XPEV)
- Electrameccanica Vehicles (NASDAQ:SOLO)
- CIIG Merger (NASDAQ:CIIC)
- Workhorse Group (NASDAQ:WKHS)
- Hyliion Holdings (NYSE:HYLN)
EV Stocks: Nio (NIO)
Nio stock has seen a stellar rally in the last 12 months, climbing 1,193%. There can be intermediate corrections for the stock. However, I believe that Nio stock is positioned to trend even higher in the next few years.
The reason is Beijing’s focus on EVs and the company’s growth momentum. In the coming decade, China is likely to remain the biggest EV market in the world. The country’s electric vehicle sales are likely to reach six million units by 2025, up from 1.8 million units in 2020. Even beyond this period, EV sales will continue to surge.
Specific to Nio, vehicle deliveries have been surging. For December 2020, the company delivered 7,007 vehicles, some 121% higher on a year-on-year basis. Even for the full year, the company’s vehicle deliveries surged by 112.6%.
I expect strong vehicle deliveries to sustain. The European expansion plan will fuel further vehicle delivery growth. In addition, the company has launched its first electric sedan model. This is likely to help Nio is gaining a bigger market share in China.
Overall, Nio has robust financial flexibility to push for aggressive growth. Industry tailwinds will ensure that vehicle deliveries remain robust. Importantly, as deliveries increase, the company is likely to report higher margins and positive cash flows in the coming quarters.
Overall, Nio stock is worth accumulating on corrections. It’s my top pick from China’s EV market.
Any discussion of EV stocks would be incomplete without talking about Tesla. However, I must admit that TSLA stock looks expensive at current levels. I would wait for some correction before fresh exposure to the shares.
In terms of positives, the company yesterday said it delivered 180,667 vehicles in the fourth quarter. It also reported positive free cash flow for the year of $2.79 billion. As FCF accelerates, so will shareholder value creation.
Another positive is that the company will have Gigafactorys in the U.S., China and Germany. Lower logistics cost and economies of scale will translate into sustained EBITDA margin expansion and FCF upside.
In terms of the pipeline, Tesla has Cybertruck, Tesla Semi and Roadster in development. This is likely to ensure that vehicle deliver growth momentum sustains. In 2020, Tesla delivered 509,737 vehicles. The company’s entry into India is also a long-term game changer. I expect the impact in the next three to five years.
I also believe that as FCF accelerates, the company is unlikely to dilute equity any further. This is also a positive in terms of TSLA stock upside. However, it makes sense to wait for a correction after a 643% upside in one year.
Following its stock listing in August 2020, shares of XPeng traded in a fairly narrow range around $21 a piece before starting a two-week climb in early November.
XPEV stock pulled back from that $75 high but I expect further upside in the coming years. Along with NIO stock, XPEV stock is a good option for exposure to the fast-growing Chinese EV market.
Bank of America analyst Ming Hsun Lee recently opined that XPeng has an “autonomous driving edge” over Chinese peers. Deutsche Bank also believes that the stock can trend higher in the near-term with “XPilot 3.0 autonomy system” acting as a stock upside catalyst. XPeng has already partnered with Livox to deploy lidar technology for new production model in the current year.
In terms of vehicle deliveries, numbers have been stellar. The company delivered 5,700 vehicles in December 2020, which was higher by 326% on a YoY basis. For 2020, the company’s vehicle deliveries were at 27,041, up by 112%.
The company’s smart electric SUV saw initial deliveries in Norway in December, putting XPeng ahead of Nio in European markets. As the company enters additional EU countries this year, vehicle deliveries are likely to remain strong.
It’s also worth noting that the company’s vehicle level margin turned positive in Q3 2020. With strong delivery numbers, vehicle margins are likely to expand further. Overall, XPEV stock is attractive even after the big rally.
Electrameccanica Vehicles (SOLO)
Shares of Electrameccanica Vehicles are among the cheaper names among EV stocks. SOLO stock also looks good from a technical perspective for a break-out in the foreseeable future.
In November 2020, SOLO stock touched a high of $10.81. Subsequently, the stock has been in a range of consolidation. A believe a strong rally is imminent in the first half of the year.
The company is positioning itself as a provider of single-seat EV. The idea is to capture the modern-urban market with a price-tag that attracts young drivers. Currently, the company is pursuing an asset-light model with its cars being manufactured in Chongqing, China. However, as demand grows, the company is looking to establish a U.S. assembly facility.
Electrameccanica Vehicles has already established retail presence in 13 locations across three Western states. With vehicle deliveries and marketing efforts ramping up, the next few quarters are likely to be exciting. While the roll-out is focused in the U.S., the company also intends to expand to Europe and Southeast Asia.
Overall, the SOLO EV comes at an attractive price-tag of $18,500. The environment-friendly solution for solo driving in cities is likely to attract consumers. Once sales start to gain traction, SOLO stock is likely to surge.
CIIG Merger (CIIC)
In the last three months, the shares of special purpose acquisition company CIIC have surged from $10 to $28, mostly on the promise of a tie-up with electric van and bus maker Arrival.
I am bullish on the newly listed entity and fresh exposure to CIIC stock should be considered. Even after the big rally.
Recently, Wolfe Research initiated CIIC stock with a target price of $50. This would imply a 79% upside from current levels.
Arrival is focused on commercial electric vehicles. Arrival’s electric bus is due to start production in the coming months. The company’s small vehicle platform will start production in 2023. The company already has an order for 10,000 vans from United Parcel Service (NYSE:UPS). The logistics and delivery provider also injected $100 million into Arrival. Other strategic partners include Hyundai Motor (OTCMKTS:HYMTF)and Kia Motors.
An attractive pipeline of launches, a big commercial EV addressable market, and strong strategic partnerships, make CIIC stock interesting.
Arrival also claims to have a game-changing micro-factory approach to production. The micro-factory has lower capital requirement, low break-even and can be deployed locally, worldwide. If this approach does deliver the projected results, I expect Arrival to make it big in the coming years.
I would therefore include CIIC stock among the top EV stocks to buy. The stock is worth holding for the long-term for multi-fold returns.
Workhorse Group (WKHS)
Shares of Workhorse Group have been relatively sideways in the last few months. I believe that one new can trigger a sharp upside. Some position in WKHS stock can be considered at current levels.
Workhorse is another interesting play in the commercial EV segment. From a technology perspective, Workhorse has seven granted patents in addition to four pending patents. The company also has technology validation from FedEx (NYSE:FDX) and UPS, among others.
Workhorse has been expecting a $6.3 billion order from the U.S. Postal Service. This order could send the stock surging. In the meantime, the company has been securing smaller orders. Once the company’s revenue visibility increases, the stock can deliver stellar returns.
The company believes that the annual market opportunity for last-mile delivery vehicles is worth $18 billion. The opportunity is therefore significant. It remains to be seen if the company can secure big orders amid increasing competition. For now, a small speculative position in WKHS stock makes more sense than a big long-term exposure.
Hyliion Holdings (HYLN)
Hyliion Holdings is another name among commercial EV stocks that is interesting at current levels. HYLN stock touched a high of $55.85 in September 2020. Subsequently, the stock has witnessed sharp correction and currently trades around $18 and makes for a good trading bet here.
In terms of commercialization, the company expects to launch activities this year and reach volume production in 2022. Hyliion believes that there is a $800 billion replacement market opportunity as commercial vehicles gradually transition to EVs.
The company has also guided for the sale of 6,600 units in the coming year, increasing to 34,500 units by 2024. This would translate into sales of $2.1 billion with EBITDA margin of 28.8%.
Most of the early stage commercial EVs have rosy projections. However, it makes sense to wait for orders to gain traction before long-term investing can be considered.
For now, short-term traders can expect 15% to 20% upside from current levels.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
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.