When assessing the future of electric vehicles, no discussion is complete without mentioning Tesla (NASDAQ:TSLA). Quickly transitioning from an upstart organization to one of the most powerful — if not the most powerful — name among auto stocks, Tesla has defined the myriad possibilities of going electric. But moving forward, it’s possible that legacy automakers could knock TSLA from its throne.
Initially, this sounds like hyperbole if not outright slander. Tesla isn’t the only EV maker in town. But arguably, it was the company that made driving EVs fashionable. That going electric was also environmentally friendly on a net long-term basis was added gravy. With the future of auto stocks decidedly pointing toward the EV route, the common assumption is that Tesla will continue leading the way.
Granted, this is a very possible outcome. But it’s also possible that legacy auto stocks can start to chip away at TSLA’s thunder. EVs are different from other innovations across various industries because they’re slower to refuel, so to speak. Therefore, they tend to be inconvenient in some contexts, which gives the advantage to traditional automakers, which can offer both petrol and electric cars.
True, current-generation EVs boast incredible range, which is starting to rise up in the neighborhood of what some high-performance combustion cars enjoy. However, there’s a problem — many of these long-range EVs are freakishly expensive. I understand that everybody on the internet is a multi-billionaire but still, $60,000 is a ton of money for a car. But at least legacy automakers enjoy massive economies of scale, tilting the advantage to traditional auto stocks.
Also, we can’t forget that EVs have an infrastructure conundrum. To justify building more infrastructure means there must be more demand for EVs. Someone’s going to have to blink first and make the commitment. At least with legacy car manufacturers, they lever a core business they can always go back to. Therefore, it’s possible that these auto stocks could one day unseat Tesla:
- Ford (NYSE:F)
- General Motors (NYSE:GM)
- Stellantis (NYSE:STLA)
- BMW (OTCMKTS:BMWYY)
- Toyota (NYSE:TM)
- Honda (NYSE:HMC)
- Volkswagen (OTCMKTS:VWAGY)
Please be warned, though, that prior calls for Tesla’s waning influence have not aged well. While history is not guaranteed to repeat, it’s well within reason for TSLA to continue moving higher. Also, auto stocks in general represent a tough place to grow your money. Therefore, be vigilant with these and any other ideas you may encounter.
Auto Stocks: Ford (F)
I’m not the biggest fan of American cars, and I’ve let my audience know about it plenty of times. But I changed my tune — and quite dramatically — with Ford. An American icon, many immigrant households like mine arrived in this country to buy Ford, so synonymous is the brand with freedom and hot dogs and stuff. But after the umpteenth time in the mechanic’s garage, they realize they should have gone Japanese.
Well, it’s possible that future American citizens will buy Ford and stick with it, which bodes very well for F stock. Mainly, the company’s Mustang Mach-E is a raving success among car enthusiasts and it’s posted contextually impressive sales results for the first quarter of 2021.
Sure, muscle car enthusiasts lament that Ford put the Mustang badge on an SUV, and an electric one no less. What can I say? The demographic for V8-powered Mustang isn’t one Ford wants to chase, which is why the company made a business decision. Over the long run, it might catapult F stock to new heights.
As I stated earlier, auto stocks have the safety net of their underlying companies returning back to the combustion platform. Therefore, I’m very comfortable with Ford’s position in the marketplace.
General Motors (GM)
It’s confession time. While I’ve made no bones about my disdain for American automakers, I really cannot stand General Motors. Particularly its Chevrolet brand is something that automatically repulses me. When I look at a Camaro, all I can think about is mullets. Granted, I’m not going to make any friends in NASCAR country, but that’s just a price I’ll have to pay.
However, GM may very well become one of the leaders in EV auto stocks, thanks in no small part to its electric GMC Hummer. A relic of an environmentally irresponsible past — some versions got 12 miles to the gallon on the highway — people nevertheless crave its robust muscular profile. But thanks to the upcoming electric version, consumers can have their cake and eat it too.
Granted, this is going to be one expensive you-know-what. However, the electric Hummer represents a pivotal paradigm shift for GM stock, with the underlying company being committed to an all-electric future. Further, the diversity of choices will give consumers plenty of choices.
That’s great news for General Motors and other legacy auto stocks; not so much for TSLA.
Auto Stocks: Stellantis (STLA)
More than likely, Stellantis will not resonate as a household name. However, for those who focus on auto stocks, they’ll know Stellantis as the parent company for several famous brands, including Fiat and Chrysler. If you genuinely believe in the EV takeover of the automotive industry, you’ll want to keep close tabs on STLA stock.
First, Stellantis via its subsidiary’s Fiat 500e features a relatively low price (under $30,000) for an EV, but with practical range (maximum of 199 miles on a single charge). Further, the 500e features several versions, which accommodate personal tastes and income levels. While Tesla offers more bang for the buck, average households have difficulty ponying up to even its base model EV.
Second, Stellantis imposes competition on the higher end of the spectrum. According to a report from Detroit Free Press, Fiat Chrysler Automobiles CEO Mike Manley confirmed that its Ram division will produce an electric truck. Americans love Ram trucks because they’re big and burly.
Indeed, Ram trucks are everything that Tesla’s Cybertruck is not. It may be a challenge to convince NASCAR country to go electric. However, if any company can, it’s Ram (brought to you by Stellantis).
Technically called Bayerische Motoren Werke, everyone knows the company by its three-letter initials BMW. One of my personal favorite auto stocks, BMW is the only automaker in which I have been a repeat customer. For years, I owned a Z4 with a straight-six engine and a manual transmission — the way God intended automobiles to be.
Later, as the fictional character Phil Leotardo might say, I compromised. I traded in my Z4 and got myself a BMW X3. I couldn’t be happier with my purchase. While only armed with a inline turbo four, the thing is incredibly zippy, likely matching my Z4’s performance. That’s despite weighing a million tons more (well, not really but you get the point).
This brings up an important wrinkle regarding EV auto stocks. Too many people assume that combustion cars are not improving their key performance and convenience metrics. But that’s just not true at all. In fact, my X3 gets between 28 to 30 miles to the gallon, despite having the capacity to pull like a freight train.
So BMW has the combustion side figured out. And it’s also moving in aggressively into the EV space, which makes BMWYY stock a double threat. Definitely, this is one name you cannot afford to ignore.
Auto Stocks: Toyota (TM)
Toyota happens to be my first love when it comes to auto stocks — and I’m sure it’s the same for many other people. Sure, like any kid, I had posters of exotic cars on my bedroom wall. But when it came time to be picked up from school because of a tummy ache, guess which brand I could depend on?
Not Ferrari (NYSE:RACE), I can tell you that right off the bat.
Of course, the knock against Toyota is that, save for the Supra, it produces cars that couldn’t be any more boring if it tried. But that’s no disservice to TM stock, with consumers gravitating toward its low-cost models that will never leave you stranded. Even though the landscape for auto stocks is shifting toward EVs, this magnitude of reliability should continue to serve Toyota very well for years to come.
But that doesn’t mean Toyota is resting on its laurels. As you know, the company has been a pioneer of hybrid vehicles, which offer the best of both worlds: battery power for local city driving and gasoline power for long distances. Toyota’s research and development of solid-state batteries also has the potential for TM to be one of the best EV auto stocks.
While EVs have dominated the discussion regarding auto stocks, one legacy automaker continues to deliver the goods through the tried-and-true combustion platform. An iconic company thanks to its legendary reliable products, Honda is a force to be reckoned with. While mostly known for its safe and inoffensive products, Honda has a racing heritage, which shows up in its sportier models.
Further, when you have such reliability and low-cost transportation from combustion engines, it gets difficult to make the switch to EVs. For instance, many folks don’t realize that you may need a permit to upgrade your home to Level 2 charging. This and other inconveniences have contributed to a surprising number of EV drivers switching back to fossil fuels.
Sure, EVs are becoming more attainable than ever before. At the same time, Honda’s combustion cars are likewise making improvements, continuing to pressure Tesla’s economic proposition.
In addition, Honda has some exciting EVs of its own that could be making their way to showrooms over the next few years. Here, the advantage is that the company levers a tremendous reputation for dependability and value. Over time, the company could easily seize some of Tesla’s market share, making HMC stock one to monitor closely.
Auto Stocks: Volkswagen (VWAGY)
Although Volkswagen may be last on this list of auto stocks that could disrupt Tesla, don’t read into this: VWAGY stock could very well be the ultimate headwind as far as TSLA is concerned.
First, Volkswagen made a $300 million investment into QuantumScape (NYSE:QS), which is one of the leading players hoping to make a breakthrough in solid-state battery technology. For full disclosure, I’ve been skeptical about QuantumScape’s ability to make that breakthrough. However, anything can happen. Obviously, if QS succeeds, that would be a boon for VWAGY stock.
Second, the company’s namesake brand is embracing the electric future. For example, its ID.Buzz Microbus should appeal to Millennials and Generation Z for its incredible utility and its all-electric powertrain, which should give it a range of around 300 miles. In other words, the ID.Buzz is a lifestyle vehicle that perfectly aligns with younger consumers’ go-green evangelism.
Third and finally, Volkswagen can easily compete with Tesla in the upper income bracket with its famous subsidiary Porsche. Indeed, the electric Porsche Taycan earned rave reviews from auto journalists for its sleek styling and excellent driving dynamics. With so much competition waiting in the wings, the EV sector is about to get very interesting.
On the date of publication, Josh Enomoto held a SHORT position in TSLA and a LONG position in F. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.