You want one. You know you want one. Every time you stop to gas up, you imagine yourself driving an electric car. Or you imagine being driven by one filled with software to keep you safe. The electric and autonomous car revolutions are the biggest sea change of the coming decade, according to investors. And that begs the question: Which electric car stocks are worth investing in?
Tesla (NASDAQ:TSLA), considered to be the leader in both autonomous and electric vehicles, is now worth more than the whole gas-powered car business put together. Every other car company wants a piece of that. The whole American car industry’s future is suddenly up in the air.
There is a lot of money to be gained, and much to be lost, in guessing which companies will be standing a decade from now. Will it be Tesla or the companies we grew up with? Will it be new start-ups? And what about batteries? Aren’t they more important than the cars themselves, and won’t all electric cars need them? What about the materials batteries are made of?
In today’s electric-car market, there is one incumbent car company. There are challengers from within the old industry and new challengers coming along. Then there are bets on batteries, the power trains of the 21st century.
As we move into this next generation of the car industry, you can place your bets on these eight electric car stocks:
- Tesla (NASDAQ:TSLA)
- General Motors (NYSE:GM)
- Ford (NYSE:F)
- Workhorse Group (NASDAQ:WKHS)
- Lordstown Motors (NASDAQ:RIDE)
- Electrameccanica (NASDAQ:SOLO)
- QuantumScape (NYSE:QS)
- Albermarle (NYSE:ALB)
Electric Car Stocks: Tesla (TSLA)
At the start of the century America’s car industry had three incumbents: General Motors, Ford and Fiat Chrysler, which is now part of Stellantis (NYSE:STLA).
Today there is one incumbent: Tesla. Its market capitalization is higher than most of the rest of the industry — foreign and domestic — put together.
Tesla’s latest results were called a disappointment, but the losses have already been recouped. By Feb. 5 shares were trading at about $850, a market cap of over $800 billion.
Why are people happy to pay over 25 times last year’s revenue for Tesla, while GM still sells at a discount to its revenue, and with four times the net income to boot?
It’s not about cars. It’s about batteries. Additionally, it’s about future electric infrastructure, where cars and trucks become a major component of demand. As CEO Elon Musk likes to say, Tesla isn’t a car company. It’s a tech company.
Tesla shares shot up fivefold last year as it became clear the company had learned to scale production and was miles ahead in battery technology. New tabless batteries will have more range and be cheaper to produce. This will let Tesla get prices on its cars down to $25,000, about the price of a new Toyota (NYSE:TM) Camry.
Tesla’s advantages in today’s auto market look a lot like Apple’s. Musk has created a full ecosystem of services around Tesla vehicles and is now extending it into industrial markets like semi-trucks.
Hedge-fund managers who got into Tesla early, like Cathie Wood’s Ark Investment Management, are the new stars of Wall Street. The fact that Tesla’s solar power business is anemic, that its semi-trucks can’t get batteries yet or that profits still depend on regulatory credits, start to look like opportunities.
If you’re looking at electric car stocks, Tesla is the obvious place to start.
General Motors (GM)
General Motors wants you to know they’re an electric car company too. America’s largest car company, by sales, now says it will eliminate tailpipe emissions by 2035 and become carbon neutral by 2040. Since the start of the year the stock has risen almost 30%.
The company’s Super Bowl ads this year featured actor Will Ferrell touting the Lyriq crossover and making cracks about Norway, where half the vehicle market is already electric.
The turnaround started in early November, when the company reported net income of $4 billion, $2.83 per share, on sales of $35.5 billion. The balance sheet after earnings showed cash of $39 billion and long-term debt of $82.7 billion.
Debt means GM isn’t as far behind Tesla as it seems. Add its debt to its equity, and the enterprise value is $200 billion. Its current bonds, issued at about 4%, currently sell at roughly $114, a yield of just about 2%. GM’s debt looks more manageable than it has in years.
GM now plans to release 30 new electric vehicles by 2025. They will be powered by a battery pack it calls Ultium, created through a joint venture with LG Chemical. GM has also launched a new electric delivery-van brand called BrightDrop, which has orders from FedEx (NYSE:FDX).
Additionally, GM plans to build a fast-charging network with EVGo, which is going public through a special purpose acquisition company (SPAC) trading as Climate Change Crisis Real Impact I Acquisition Corp (NYSE:CLII). GM also plans to sell insurance through its OnStar system, based on real-time data on driving.
I called a bottom on GM in August, after a poor second quarter. The stock’s price has doubled since then. Analysts like Adam Jonas of Morgan Stanley (NYSE:MS) now believe it can keep rising, making it one of the electric car stocks you should definitely be watching.
Investors are starting to believe in Ford again. Since the start of the year the stock is up 33%. On Feb. 5, the stock was due to open at $11.61, a market cap of $47 billion.
Ford’s fourth-quarter earnings release downplayed its full-year 2020 loss. Instead, it headlined a planned $29 billion investment in electric and automated vehicles, solidifying its place on this list of electric car stocks.
Ford’s stock has been buoyed this year by the Mustang Mach-E, an electric SUV designed to compete with the Tesla Model Y. The Mustang is not only drawing strong reviews, but it’s eligible for a $7,500 tax credit that has expired on the Tesla, meaning it’s 20% cheaper.
Ford now says it is creating a new group called Team UpShift that will use Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Cloud to streamline Ford operations. Missing in the Ford-Google show is any mention of Waymo, Google’s autonomous car project.
Ford’s coming $29 billion investment is part of a five-year plan that looks affordable. The company had $25 billion in cash on its books at the end of 2020 and $24 billion in operating cash flow during the year. It has almost $110 billion in long-term debt, but $88 billion represents auto loans made through Ford Credit. Only $22 billion accrues to auto operations.
The riskiest part of that plan is still ahead. Electrics remain the shiny object of the future, while most people still buy gas-powered vehicles. There’s still the tipping point to be managed, where buyers see gas-powered cars as having a limited shelf life and profits from them disappear. Ford will still have enormous capital tied up in its gas-powered car line when that happens.
Workhorse Group (WKHS)
Shares in Workhorse Group are up 98% in 2021, thanks mainly to the U.S. Postal Service. They want to replace 140,000 gas-powered delivery wagons with electric vehicles. Workhorse is one of three finalists for the order.
The contract is worth over $6 billion, and President Joe Biden’s Jan. 25 “Buy American” executive order seems to play right into Workhorse’s hands.
Workhorse has two vans that seem perfect for the job, the C-650 and C-1000. It has also been in business since 2007, as AMP Electric Vehicles. It works out of a plant once used by General Motors and, later, by Navistar International (NYSE:NAV).
Competition for the Postal Service contract is most intense from Oshkosh (NYSE:OSH), formerly Oshkosh Truck, which has teamed up with Ford. Their original bid was for a gas-powered truck, but Oshkosh now says it’s “ready to pivot” to electrics if it wins the deal. A decision could come next month.
Even without the Postal Service, Workhorse is doing deals. Privately held Pride Group Enterprises, based in Canada, has signed a deal to buy 6,320 C-Series vehicles. The Pride order represents more trucks than Workhorse had originally planned to build in 2021. The order runs through 2026. WKHS also has a deal for 500 electrics with Prichard Companies, a large industrial dealer in Iowa.
While Workhorse seemed early to the market of electric car stocks, it may now be late. GM and Ford are both targeting it. Other big customers are going their own way.
Amazon (NASDAQ:AMZN) has ordered 100,000 electric vans from privately held Rivian and invested $700 million in the company. UPS (NYSE:UPS) has committed to buying 10,000 electrics and invested in their maker, Arrival, which is going public through a SPAC called CIIG Merger (NASDAQ:CIIC).
Still, when Workhorse sold off in November, after the Postal Service delayed its order, Cathie Wood of Ark Investments bought in for her ARK Autonomous Technology & Robotics ETF (BATS:ARKQ). Wood has jumped out of the pack of Wall Street managers with her ARK ETFs, focused on disruptive technology. Her fund’s purchase doesn’t guarantee Workhorse will win. But it’s proof that it’s in the game.
Lordstown Motors (RIDE)
Since the Aug. 3 announcement that Lordstown Motors would go public by merging with a SPAC called Diamond Peak, the company’s value has doubled.
Lordstown was created to build electric pick-ups for commercial use. The plant, near Youngstown, Ohio, was built to assemble cars for General Motors. After GM announced the plant’s closure in 2018, it was sold to RIDE for a nominal price. This included a $40 million loan from GM and a 10% stake for Workhorse Group.
What has really put Lordstown stock into overdrive is the November election.
President Biden has issued an executive order calling for an all-electric federal vehicle fleet. Lordstown has begun work on an electric van. The Mahoning Valley, once home of America’s great steel mills, is now calling itself “Voltage Valley.”
The company says it will begin full production of its pick-ups in the fall. It claims to have over 100,000 orders already.
Lordstown also announced a service deal with Camping World stores that might make them a retail sales channel. It also might result in motor homes built on the Endurance “skateboard” chassis, also being used for the van. Prices on the Endurance would start at $45,000, which is competitive with gas-powered pick-ups.
The current market cap of $4.9 billion is the equivalent of about 108,000 trucks at that $45,000 retail price. If Lordstown was able to clear $5,000 per truck, it already has an enormous valuation. But if it can get into production it could be sold on — maybe to General Motors — that’s the bullish thesis.
A rising tide lifts all boats. Anyone who can sell an electric, or will sell an electric, or who will support an electric, can sell electric car stocks in the current market.
While other electric-car companies are going public to change the world or build a manufacturing base, Electrameccanica is an importer. Its aim is to bring in 75,000 three-wheeled, one-seat electrics made by Zongshen Industrial Group of Chonqing, China. Built on a motorcycle platform, but with two wheels in front, it can get about 100 miles on a charge and costs just $18,500. Production began over the summer. The battery can be recharged overnight on a standard wall plug, and in 2 ½ hours using the power plug of a clothes washer.
The original pitch was for solo commuting, but the company now talks up things like pizza and prescription delivery. The company expects to have 13 dealerships soon, up from 10, all on the West Coast. That press release about the dealers seems to have renewed interest in the stock.
Electrameccanica’s prospects intrigue Wall Street, with four analysts all saying buy it and giving an average price target of $9.05 per share.
I personally think the marketing is wrong. Rather than sell this as a way for white-collar workers to reach a nonexistent office, the SOLO makes more sense as an intra-city delivery vehicle. Ghost kitchens and pharmacy chains should be snapping these up, not auto dealers.
Quantumscape is working to create a solid-state lithium-ion battery that recharges fast and lasts a long time. It’s the key to making the promise of electric cars a reality.
Current batteries are prone to dendrites, hair-like particles that grow inside the batteries and inhibit the flow of electricity. CEO Jagdeep Singh has been working on the problem for a decade. He may have a solution in a thin ceramic sheet that filters lithium as electricity passes through the battery.
The company that can solve the problems plaguing today’s liquid lithium-ion batteries can make a fortune. It’s not entirely clear Quantumscape is that company. It must find a way to produce a lot of separators and install them at scale. Then it has to mass-produce solid-state lithium-ion batteries. And it must deliver them at a competitive price.
Tesla dominates the electric-car market today because it dominates in batteries. It has a system for recharging them and changing them out, and it can mass-produce them. It promises to improve range with tabless batteries, but even these are three years away from full production.
Its rise in December was fueled by an installation agreement with Volkswagen (OTCMKTS:VLKAY), one of its backers. It then fell after a short-seller wrote on Jan. 4 that its road is a hard one, and that there’s a lot of competition.
If the stock has bottomed, as our David Moadel believes it has, then it’s time for you to place your bets. New materials like graphene and sulfur could blow lithium-ion out of the water. Quantumscape may be unable to prove reliability or scale up production.
If you place a bet, treat it like venture capital, and be prepared to stay in for years.
Tesla’s success has sent demand for lithium through the roof. Since late November, prices for lithium carbonate are up about 50%.
Albemarle, a lithium producer, opened Feb. 1 at $166. That’s a market cap of roughly $17.3 billion on estimated 2020 revenue of $3.24 billion, of which about 12% hit the net-income line. Albemarle produces lithium near Silver Peak, Nevada, and hopes to double production there over the next five years. Albemarle also has concessions in Chile and Australia.
The company produces more than lithium. It also produces bromine for things like fire extinguishers and plastics, as well as catalysts for the oil and gas industry. The market for bromine is expected to grow at a steady 5% per year. The catalyst market is growing at a similar rate.
It’s hard to see the excitement in Albemarle if you just examine its income statement. Revenues had been growing at 6% per year through 2019 and should be down for 2020. If ALB hits earnings estimates, its total 2020 revenues should be about 15% short of where they were a year ago.
All the buying action on Albemarle is about the future and those plans to double production. ALB sales of lithium for batteries is estimated at $720 million, meaning it’s less than one-quarter of the company’s total turnover.
The assumption is that the Biden administration wants American lithium supplying American batteries for American cars, thus prices should rise. This has some analysts drawing nicely sloped earnings projections well into the future.
However, there remains a bear case. Betting on politicians is a mug’s game. Imports could keep prices down. And China currently dominates battery manufacturing — seizing share for the U.S. won’t be easy.
Albemarle is a speculation based on an assumption that may not prove true. Lithium is not the only material you can make batteries from. Sodium and graphene, derived from carbon, also hold great promise.
Batteries will change a lot over the next five years, affecting all electric car stocks, and Albemarle won’t be the only winner. But it could certainly be one of them.
At the time of publication, Dana Blankenhorn directly owned shares in AAPL and AMZN.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.