The electric vehicle market has immense growth potential over the next decade, spurring investors to pour into EV stocks.
A Deloitte study indicates that the global EV market is expected to grow at a CAGR of 29% over the next 10 years. The International Energy Agency believes that there will be 145 million electric vehicles on road by 2030. Clearly, these are big numbers and it’s not surprising that the EV industry is already intensely competitive. The growth outlook has also mean that EV stocks will remain in focus.
Tesla (NASDAQ:TSLA) has been ahead of the curve when it comes to making inroads in the global market. However, the company is already losing market share as competition intensifies. In April 2021, Tesla’s global electric-car market share declined to 11%, the lowest level in the last two years.
With the emergence of several pure-play electric vehicle companies, Tesla is likely to continue facing increasing competition. At the same time, traditional automakers are gradually moving towards a portfolio weighted towards electric vehicles.
This column will discuss seven EV stocks that could be a potential ‘Tesla Killer’ in the next few years. Let’s take a deeper look into the following EV stocks:
- XPeng (NYSE:XPEV)
- Nio (NYSE:NIO)
- Li Auto (NASDAQ:LI)
- Lucid Group (NASDAQ:LCID)
- Ford Motor (NYSE:F)
- Fisker (NYSE:FSR)
- Arrival (NASDAQ:ARVL)
EV Stocks to Buy: XPeng (XPEV)
It’s worth noting that Tesla’s China sales more than doubled to $6.66 billion in 2020. For the year, the company derived 20% of its sales from China. Among the EV companies in China, XPeng seems to have the “Tesla Killer” potential.
For year-to-date 2021, XPEV stock has been sideways. Even with strong sales numbers, regulatory headwinds in China have subdued the stock. However, this seems like a good accumulation opportunity.
One reason to like XPeng is the company’s intense focus on innovation. As an example, P5 is the world’s first mass-produced smart EV equipped with automotive-grade LiDAR technology. The company’s positioning as a smart EV manufacturer is likely to deliver results in the long-term.
For Q2 2021, XPeng reported revenue of $582.5 million. On a year-on-year basis, revenue was up 536.7%. With sustained growth in vehicle deliveries, it’s likely that robust top-line acceleration will continue. At the same time, XPeng has been reporting higher vehicle level margins.
XPeng is also well positioned from a financial perspective with cash and equivalents of $5.1 billion. This will allow the company to invest in manufacturing expansion. Additionally, launch of new models will help in boosting growth.
XPeng is also likely to take on Tesla in other markets. The company already has presence in Norway and is likely to enter into other European markets.
Nio is another attractive name among Chinese EV stocks that’s worth considering as a strong competitor of Tesla. Initially, I am focused on Chinese EV stocks as China is likely to remain the biggest EV market in the next decade.
NIO stock has also been subdued for the year with a downside of 21%. In recent news Nio filed to sell $2 billion worth of shares in an at-the-market offering. This might translate into some near-term weakness in the share price, which would be a good buying opportunity.
Nio already has a strong balance sheet with cash and equivalents of $7.5 billion as of Q2 2021. Further proceeds will ensure that the company is full-financed for the next 24 months.
For Q2 2021, Nio reported deliveries of 21,896 vehicles. On a YoY basis, deliveries were 111.9% higher. Vehicle-level margin was also robust at 20.3%.
The company’s premium smart electric sedan is due for launch on 2022. Further, Nio also has plans to make entry into the European market. These factors are likely to ensure that vehicle deliveries remain strong in the coming quarters.
Overall, Nio is positioned to survive the intense competition in the EV industry. With strong financial flexibility, focus on innovation and geographic expansion, the company’s outlook is bright. NIO stock is therefore worth accumulating on declines.
EV Stocks to Buy: Li Auto (LI)
Li Auto looks like a quiet killer in the Chinese EV market. While Nio and XPeng have grabbed the limelight, Li Auto has delivered steady growth and cash flows.
For most of 2021, LI stock has been sideways. However, this has been the trend for most Chinese EV stocks after a big rally last year. Considering the company’s business developments, a rally seems looming.
It’s worth noting that for Q2 2021, Li reported delivery of 17,575 deliveries. For the prior year comparable period, deliveries edged past 6,600. Clearly, the company is on a robust growth trajectory. An important point to note is that the company currently has just one model in the market. With 97 retail stores in 64 cities, Li has been focused on expanding presence.
Another point worth noting is that for Q2 2021, Li reported free cash flow of $152.1 million. Therefore, the company already has an annualized free cash flow potential of $600 million. As of June 2021, Li Auto also had cash and equivalents of $5.66 billion.
Li Auto is investing in manufacturing expansion and creating a new product line. As new models are introduced, the company is positioned to maintain strong growth. International expansion also seems very likely in the coming years.
Lucid Group (LCID)
After the initial listing euphoria, Lucid Group shares has remained subdued. It however seems that downside is limited from current levels. Once Lucid Motors vehicle deliveries commence in the coming months, LCID stock is likely to trend higher.
The company’s Lucid Air Dream Edition has already been fully reserved with more than 10,000 cars booked. The company has an ambitious line-up of products over the next few years. This includes Lucid Air, Lucid Gravity and other sedans and SUVs.
It’s also worth noting that Lucid is aggressively expanding its team. The company already has employees in North America, Europe and the Middle East. This is an indication of the point that Lucid is likely to expand into multiple geographies relatively soon.
In terms of the differentiating factor, Lucid claims to have battery efficiency that’s better than Tesla Model S.
Lucid expects to clock revenue of $2.2 billion for 2022. The company expects revenue to surge to $13.9 billion by 2025. I would take these projections with a grain of salt.
However, there is no doubt that the company has an attractive product offering that will be supported by industry tailwinds. Furthermore, with EMEA deliveries likely to commence in 2022 followed by China in 2023, the addressable market is huge.
EV Stocks to Buy: Ford Motor (F)
F stock is certainly not among the pure-play EV stocks. However, Ford has ambitious transformation plans for the next 10 years.
By 2030, Ford expects 40% of its sales globally to be electric vehicles. To achieve this, the company has planned an investment of $30 billion in the EV segment through 2025.
The company’s plan is already delivering results. For June 2021, Ford’s electric vehicle sales increased by 117% on a YoY basis. Further, in the first half of the year, the company sold 56,570 electric vehicles.
Ford also has ambitious growth plans for China. The company inaugurated 10 direct-to-customer electric vehicle storefronts in Q2 2021. A locally built Mustang Mach-E was also revealed during the quarter. As more EV models are introduced, coupled with robust growth in stores, Ford is positioned for strong growth.
It’s worth noting that as of Q2 2021, Ford reported $25.1 billion in cash and equivalents. Add in the undrawn credit facilities and the company has a total liquidity buffer of $41 billion. Therefore, Ford is well positioned to make big investments for an aggressive portfolio transformation.
F stock has been in an uptrend as market conditions improve. It’s likely that the positive momentum will sustain with strong growth in the EV segment.
At a market capitalization of $4.0 billion, FSR stock is another attractive name among EV stocks. Fisker has yet to deliver an electric vehicle. However, the company seems to be on track to execute an ambitious growth plan.
The company’s first EV model, Fisker Ocean, is due for launch in Q4 2022. The model has already seen more than 62,500 indications of interest from consumers. It’s worth noting that Fisker Ocean will also be available in a flexible leasing model at $379 to $999 per month. This is one factor that can generate strong interest in the coming quarters.
Fisker has plans to launch four models by 2025 and the company is targeting annual sales volume of 200,000 to 250,000 units. This would represent around 1% of the serviceable addressable market.
From a financial perspective, the company reported cash and equivalents of $1.5 billion as of June 2021. This provides the company with ample financial flexibility to invest in additional models and technology.
It’s also worth noting that Fisker is initially pursuing an asset-light business model. The company expects production in the United States to commence only in Q1 2024. Therefore, manufacturing investment is likely to come only after sales gain meaningful traction.
EV Stocks to Buy: Arrival (ARVL)
The commercial electric vehicle segment is another big market opportunity in the coming years. Tesla is already set for a potential launch of Semi in 2022. Arrival is an interesting company in the commercial EV segment.
While Tesla is focused on the Gigafactory approach, Arrival has a unique micro-factory approach. With its lower capital investment, the micro-factory is rapidly scalable.
In the next few years, Arrival is likely to have several micro-factories in the United States, Europe and emerging markets. Currently, the company’s U.S. factory is 80% completed and the U.K. micro-factory is also 75% completed.
It’s worth noting that Arrival already has a non-binding orders and letters of intent for 59,000 vehicles. This creates a revenue and cash flow visibility once the micro-factories are operational. In particular, the company’s order from United Parcel Service (NYSE:UPS) will deliver growth in the foreseeable future.
Overall, Arrival has invested significantly in research and innovation. The company has a strong portfolio lined-up that includes vans and buses. As orders continue to swell and vehicle deliveries begin, ARVL stock is likely to be meaningfully higher 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. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.