Grading 7 of the Hottest Electric Vehicle Stocks Making Waves

electric vehicle stocks - Grading 7 of the Hottest Electric Vehicle Stocks Making Waves

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Electric vehicle stocks continue to be excellent investments in the year thus far. After an amazing 2020, many felt they would lose some steam in the new year as fundamentals caught up with market capitalizations.

However, that has not happened. In fact, the field is growing more crowded by the day. Even old, established automakers are making their way into the industry, trying to capitalize on all the momentum. So, there are many ways to play this secular trend.

Before moving to the next section and taking a deep dive on seven electric vehicle stocks expected to do well, it is important to address certain concerns that investors have regarding these stocks.

First, many feel that the best days of the sector are behind it. We had a broad market selloff that pushed EV stocks down quite a bit. But fears are unfounded.

President Joe Biden laid out a sweeping $2 trillion infrastructure bill where the EV industry will serve as a major lynchpin. Similar strategies are being adopted all over the world. Tighter emission regulations will also help in the faster adoption of EVs. And, we are seeing a slow, gradual shift in consumer preferences as well.

Hence, all things considered, electric vehicle stocks make excellent additions to your portfolio. Let’s see how some of the heavy hitters in the sector are doing:

  • Tesla (NASDAQ:TSLA)
  • Nio (NYSE:NIO)
  • XPeng (NYSE:XPEV)
  • Quantumscape (NYSE:QS)
  • ChargePoint (NYSE:CHPT)
  • BYD (OCTMKTS:BYDDF)
  • General Motors (NYSE:GM)

Electric Vehicle Stocks to Buy: Tesla (TSLA)

Tesla (TSLA) logo on city building at night
Source: Vitaliy Karimov / Shutterstock.com

Grade: A

Our first entry on the list is a no-brainer. Tesla is the bellwether for the industry. It has become symbolic of what you like or hate about the recent EV frenzy in many ways.

Brenden Rearick, InvestorPlace assistant news writer, wrote an excellent article on Goldman Sachs’s latest EV space picks. The only pure-play among the notables was, you guessed it, Tesla.

Putting an accurate estimate on TSLA stock is a tough task. But the reason for the high grade is a combination of price momentum and improving financial performance.

One cannot make the argument that TSLA stock is fairly valued. However, the upside in investing in this one is too good to ignore. Although analyst estimates vary, there is a consensus that the stock will continue to rise at an exponential rate in the coming years.

The company has a foothold in all the major EV markets globally, has a solid relationship with China, and has delivered close to 500,000 vehicles in 2020.

Many would ask why I would not give this one an A+ grade. Well, for me, it has got to do with the gap between its fundamentals and the stock performance. The company is now the biggest automaker by market cap despite delivering a fraction of the cars.

Still, the company’s scale makes it a safe investment in an otherwise hazardous space.

Nio (NIO)

A close-up shot of the Nio (NIO) ES8 vehicle.
Source: xiaorui / Shutterstock.com

Grade: A

Another name that gets thrown around a lot in the EV space is Nio. Often referred to as the Tesla of China, Nio has had an interesting year.

Much like the other names on this list, delivery numbers are solid. In every month and quarter of 2020, Nio bested previous records. Hence, it came as no surprise that the markets rewarded this one handsomely. However, the proof of the pudding is in the eating. The company is still unprofitable and will remain so for the next year.

But you wouldn’t know that because of the Tesla-induced frenzy. But then why do I give it a good grade? Well, it has a lot to do with China, the world’s biggest EV market.

Nio enjoys a strategic relationship with China. When things went south at the pandemic’s height, the Chinese government bailed out the company.

In return, Nio has agreed to build a facility in Hefei, the capital of Anhui province. Plus, the local Chinese government with which it inked $1 billion will have a degree of say when running operations.

Now you can look at this two ways. On the one hand, you have strong institutional support from the Chinese government. However, many will be squeamish of Nio becoming a kind of state-owned enterprise.

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For me, an association with the Chinese government is not a bad thing, considering the importance of the market. Also, Tencent (OTCMKTS:TCEHY), JD.com (OTCMKTS:JDCMF), and Baidu (NASDAQ:BIDU) all have a stake in Nio. If you are familiar with the Chinese investment space, these are pretty heavy hitters. That should instill even more confidence that you are putting your money in the right place with NIO stock.

XPeng (XPEV)

Xpeng logo and P7 model in store XPEV stock
Source: Andy Feng / Shutterstock.com

Grade: D

Among electric vehicle stocks, XPeng tends to get lost in the shuffle. It’s one of three Chinese EV companies listed on the New York Stock Exchange.

I guess you can chalk that up to a few factors. First, even though delivery numbers are solid, they are nowhere near Tesla, and Nio’s figures are racking up. Secondly, fundamentals are decidedly poor. You expect that with every EV maker. But it’s particularly acute here. Every major operating metric is in the red.

There has also been a lot of dilution in the past 12 months. One can cut the EV maker some slack here. Shares have skyrocketed, and XPeng is using that opportunity to drum up cash.

In December, XPeng raised about $2.45 billion from the sale of  55.2 million new American depositary shares for $45 apiece. These equity raises come at a price. Such strong dilution is not for the faint of heart.

Hence, my D grade for the stock is due to an absence of fundamental strength, high dilution, and overvaluation.

Electric Vehicle Stocks to Buy: QuantumScape (QS)

A sign for QuantumScape (QS).
Source: Michael Vi / Shutterstock.com

Grade: C

It’s tough for me to value QS stock. On fundamentals, I will give it a D−. But if I judge it on prospects, there is no grade high enough to give it. If I have to sum it all up, this is a go-big-or-go-home investment.

QuantumScape specializes in quantum glass batteries. These batteries are the “holy grail” of the EV sector, looking to solve the two most pressing problems keeping electric vehicles from wider adoption – limited battery life and slow charging times. Nobel laureate John Goodenough pioneered the concept, which uses a glass electrolyte and lithium or sodium metal electrodes.

As a result, Microsoft (NASDAQ:MSFT) founder Bill Gates and Volkswagen (OCTMKTS:VWAGY) became its early backers. Volkswagen has the right to purchase the first batteries produced. Thereafter, QuantumScape can sell to any buyer.

Again as I have mentioned, grading this company is a difficult task. I would keep a small position in my portfolio since the prospect of shares going hyperbolic is too good to ignore.

ChargePoint (CHPT)

A close-up shot of a ChargePoint (CHPT) charging station.
Source: YuniqueB / Shutterstock.com

Grade: B

Retail traders had a ball with SBE stock before the special purpose acquisition company (SPAC) merged with ChargePoint to list the latter. SPACs have become an increasingly popular way for exciting EV startups to debut. However, they usually follow a boom and bust cycle.

So, when the SPAC announces the merger, shares skyrocket. Then once the dust settles and the ticker starts to trade, the stock will inevitably lose a bit of steam as fundamentals push it down to earth.

CHPT is now at the end of the SPAC cycle. It debuted in March, and we are now a few weeks into the listing. CHPT stock is down 28.5% in the last month. Hence, from a valuation perspective, it is attractive.

It has the biggest online network of independently owned EV charging stations across 14 countries.

By 2025, the company plans to have 2.5 million charging points online, and by 2026 it forecasts to have more than $2 billion in revenues. Those are ambitious numbers. However, they make sense since CHPT is the big game in town.

Other companies are going to come in eventually to challenge its hegemony. But the sharp pullback makes me believe this is an excellent stock to have in your portfolio. The only reason I haven’t given a higher grade is that operating metrics need to get better. Aside from that, the prospects for this one are great.

BYD (BYDDF)

An electric vehicle is hooked up to a charging cable.
Source: Shutterstock

Grade: A

Warren Buffett-backed BYD saw net income jump by 162% to 4.2 billion yuan in 2020.

One of the important things to note here is that BYD is a major conglomerate manufacturing battery-powered bicycles, buses, batteries, and, most recently, face masks.

Plus, since we keep harping on and on fundamentals, it’s worth noting that this company is profitable. It bumps up the letter grade because we are talking about an industry consisting of mostly unprofitable startups.

Lastly, momentum for the company is rock solid. In March, battery-powered passenger cars’ sales came in at 16,301 units, ahead of both Nio and XPeng. Overall, an excellent investment to have your portfolio.

Electric Vehicle Stocks to Buy: General Motors (GM)

General Motors (GM) sign with blue and white logo and brick building in background
Source: Jonathan Weiss / Shutterstock.com

Grade: A

Our final entry on this list of electric vehicle stocks is one of the more iconic car companies.

General Motors is planning to spend more than $27 billion on EVs and autonomous vehicle technology by 2025. And the company will have 30 new EV models by 2023.

Two important elements put GM a cut above the rest.

First, the company has an excellent presence in China. In 2020 alone, General Motors and its joint ventures delivered 2.9 million vehicles in China. Besides, the Hongguang Mini, an all-electric city car manufactured by SAIC-GM-Wuling, is holding its own China against the Tesla Model 3.

Overall, fundamentals are excellent, with an enviable gross margin and return on equity of 11.2% and 13.9%, respectively.

GM stock has beaten the S&P 500 by 107.4% and its sector by 58.6% in the past year. So, price momentum is also great.

The bottom line is that while GM stock might not be as enticing as TSLA stock, it is still one of the better EV plays out there, considering that it’s an already established brand.

On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.


Article printed from InvestorPlace Media, https://investorplace.com/2021/04/grading-7-of-the-hottest-electric-vehicle-stocks-tsla-nio-xpev-qs-chpt-byddf-gm/.

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