By now any electric vehicle (EV) stock enthusiast is well aware of 2021’s trajectory for EV stocks. The sector is very much one that plays follow the leader. So the market went up for about the first week of this year and then volatility and downward momentum set in.
Generally speaking, no matter which individual EV shares an investor held, the pattern was the same: Downward price momentum into mid-May which marked an inflection point. Since then prices have generally been flat to upward.
That broadly indicates momentum for the short term which is always a good sign. However, the time frame of this article isn’t the next few months. When we discuss stocks that will ride out the race to the top, as the title of this article suggests, we clearly have a different meaning in mind.
That means we’re talking about the wheat amongst the chaff. After all is said and done these are the electric vehicle companies that look worthy of investing in for the long run. There should be a few surprises here so let’s get into it.
- Tesla (NASDAQ:TSLA)
- Fisker (NYSE:FSR)
- Lucid (NASDAQ:LCID)
- ChargePoint (NYSE:CHPT)
- Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV)
- Nio (NYSE:NIO)
- Xpeng (NYSE:XPEV)
EV Stocks That Will Race to the Top: Tesla (TSLA)
I’d posit that any list of electric vehicle stocks discussing the race to the top and the long run ought to begin with Tesla. I mentioned that the EV stocks are very much a follow the leader type of sector. Clearly I was referring to Tesla when I wrote that.
As Tesla goes so go all the other EV stocks. That’s simply because it has already won the race to the top. It is a pioneering force in electric vehicles. Despite personal opinions of Elon Musk, you have to admit that what he has done is amazing.
Tesla had its breakout year in 2020. It paved the way for all other electric vehicle manufacturers, and while the company isn’t perfect, it deserves investor capital. The company was founded in 2003, began production of its Model S in 2012, Model 3 in 2016. There have been plenty bumps along the road in TLSA’s rise to prominence.
You really have to give it kudos. These days TSLA stock is moving on news related to self-driving software releases and updates.
The company is aiming for a wider release of its Full Self-Driving beta software by the end of September. Elon Musk has been promising wiser roll outs of full self-driving software for Tesla vehicles for quite some time. So users and investors alike are already wary. Ultimately though, Musk has proven again and again that he achieves what he sets his mind to.
That track record makes Tesla a sure fire buy for long-term electric vehicle stocks.
For investors who’ve been watching Fisker over the past few quarters a clear narrative has emerged: The company’s strategy for its first vehicle, the Ocean SUV, seems solid and logical. That should put the company off on the right foot when Oceans begin rolling off the assembly floor in Q4 of 2022.
Fisker’s strategy here is that it has outsourced the manufacturing of the Ocean to Magna International (NYSE:MGA). Magna is among the most proven Original Equipment Manufacturers (OEMs) for vehicles worldwide, with the move being heralded as a conservative but smart choice.
The company anticipates that volume will reach 5,000 units per month in 2023. It also maintained a cash balance of $962 million by the end of the second quarter. The bull thesis here is that the Fisker Ocean will roll off the assembly line with far fewer hiccups due to Fisker’s asset light approach. Therefore, financial results should be better than if Fisker manufactured in house.
I would bet on the Ocean being a solid vehicle. The bigger risk relates to Fisker’s second vehicle, Project Pear. It also relies on outsourced manufacturing, this time to Foxconn. That project has hit massive snags and is rife with complaints.
So not only is Fisker attempting to release two vehicles before its first comes off the production line, it’s relying on two vastly different manufacturers. Magna is steady and proven, and Foxconn is burning bridges in America’s heartland.
The risk is clear here. If Fisker loses, it won’t be because of the Ocean.
EV Stocks That Will Race to the Top: Lucid (LCID)
Lucid is very young. So calling it a stock that will ride out the race to the top may seem a bit premature.
But for investors who like Tesla, Lucid is almost a carbon copy chance at similar price appreciation. The company’s Lucid Air lineup is aimed squarely at dethroning the Tesla S for EV luxury sedan dominance. It has multiple offerings within the lineup that slot nicely against Tesla S versions. Peter Rawlinson, Lucid’s CEO, was a chief engineer on the Tesla S model while VP of vehicle engineering at the company.
Lucid, like Tesla, is building its own manufacturing footprint in the U.S. The greenfield site in Casa Grande, Arizona is undergoing expansion. It will have the capacity to produce 365,000 vehicles annually and will reach 5.1 million sq ft following the 2.7 million sq ft update. That expansion will allow the company to produce its first SUV, Project Gravity, in 2023.
The other good news is that Lucid recently received its first analyst rating. Citigroup analyst Itay Michaeli gave it a buy rating and a $28 target price stating: “Lucid resembles much of what we like about Tesla, but without the lofty 2030 [market] share and [self driving] outcomes that one must underwrite.”
Investors who glance at Chargepoint’s price chart throughout 2021 may be less than enthusiastic about its prospects. After all, it has essentially halved from its highs in the $40s.
But the truth is that both the short term and long term are bright for the EV charging network company.
ChargePoint’s second quarter earnings beat analyst expectations posting $56.1 million while analysts expected $49 million. The company did post earnings which were arguably disappointing though. The company was expected to post an earnings loss of 12 cents. They instead posted a loss of 13 cents. While that’s not a great difference, posting losses beyond what analysts expect isn’t exactly a good look.
But growth companies are primarily judged upon their ability to increase sales. Operational efficiency and earnings are problems to be tackled further down the line.
And ChargePoint is bullish in its own ability, having raised guidance moving forward. Management is forecasting between $60-$65 million in sales while analysts expect $62 million. That has led the company to increase guidance for 2021 sales to $230 million from $200 million earlier.
The company is already a leader in the EV charging space and President Joe Biden’s infrastructure spending plans prioritize ChargePoint’s services. Look for ChargePoint to emerge as a dominant force in the space.
EV Stocks That Will Race to the Top: Global X Autonomous & Electric Vehicles ETF (DRIV)
Another way to win in the ride to the top of the EV scramble is to play it safe. In this case that means investing in DRIV stock. The Global X Autonomous & Electric Vehicles ETF provides exposure to exchange-listed companies in electric and autonomous vehicles.
It is modeled after the Solactive Autonomous & Electric Vehicle Index, which is itself a great resource for understanding the broader components that make up the EV market.
In any case DRIV shares are going to provide safer exposure to EV stocks than any individual stock can. The ETF carries a beta of 1.44 meaning it moves 44% more than its index. Tesla’s beta is 1.96 over the past 5 years for the sake of comparison.
Tesla is the first EV company to show up on the ETF’s top ten holdings at first place. It includes Alphabet (NASDAQ:GOOG, GOOGL) for its autonomous vehicle development and chip companies like Nvidia (NASDAQ:NVDA) and Qualcomm (NASDAQ:QCOM) as well.
Investors get broad exposure to EV growth and overall strong companies while also receiving a small dividend yielding 0.27%.
Although I’m an ardent believer the next two Chinese EV stocks on this list will emerge as great EV companies of the decade, they are volatile.
In the case of Nio, recent news of a $2 billion share offering in the past fews days has sent prices down. The news took prices from $40 down to $38. However, they’ve shown resilience and have since begun to trend upward.
The 3% dilution didn’t seem to affect stock prices for long. Nor did the fact that Nio choose to raise capital through its U.S. ADRs even as Chinese U.S. listed stocks face continued concerns.
Naysayers will continue to nitpick at Chinese companies including Nio. Yet, at the end of the day the company has what investors look for in growth companies: Rising sales and deliveries. Well, sort of anyway.
The company actually had to pull back on previous Q3 delivery guidance of 23,000 to 25,000 vehicles due to supply chain constraints. It now anticipates 22,500 to 23,500 vehicle deliveries during the quarter. However, the company still delivered 5,880 vehicles in August, 48.3% more than last year’s August figure.
EV Stocks That Will Race to the Top: XPeng (XPEV)
It might surprise readers to realize that XPeng actually outsold Nio in August. The company recorded 7,214 vehicle deliveries to Nio’s 5,880 in the month.
The vast majority of those deliveries — 85.45% — were attributable to the company’s P7 sedan, of which totaled 6,145. The company has delivered 45,992 vehicles to date this year, representing 334% growth year-over-year.
Like Nio, XPeng also recently tapped the equity markets for financing. However, XPeng did so in the Hong Kong market rather than the U.S. market.
XPeng currently sells two vehicles: The P7 sedan and the G3s, a compact SUV. The company will soon add a third vehicle, the P5 family sedan on Sept. 15. Deliveries will begin in October.
It’s very difficult to bet against the likes of XPeng and Nio given their status as national EV brand champions in China.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.