7 Best EV Stocks to Buy As The Competition Gets Fierce
The global electric vehicle (EV) industry is at a growth inflection point, and that brings the topic of EV stocks directly to mind.
According to Deloitte, EV sales are likely to grow at a CAGR of 29% through 2030. So, with clear, multi-year industry tailwinds, EV stocks are likely to be among the top investment themes.
At the same time, the electric vehicle industry has witnessed intensifying competition. Six years before, there were less than 100 EV models globally. Now, the number stands at more than 500. With new entrants in the industry, competition will remain fierce. It goes without saying that there will be winners and losers.
Moreover, it’s also worth adding here that besides pure-play electric vehicle companies, traditional car makers are also making a big shift towards EV. Ford (NYSE:F), General Motors (NYSE:GM) and Volkswagen (OTCMKTS:VWAGY) are just few examples.
Therefore, the industry is attractive, but investors need to be very selective in choosing EV stocks. So, let’s talk about seven EV stocks that are positioned to survive and grow amidst intensifying competition.
- Nio (NYSE:NIO)
- XPeng (NYSE:XPEV)
- Li Auto (NASDAQ:LI)
- Tesla (NASDAQ:TSLA)
- Lucid Group (NASDAQ:LCID)
- Arrival (NASDAQ:ARVL)
- Fisker (NYSE:FSR)
Now, let’s dive in and take a closer look at each one.
EV Stocks to Buy: Nio (NIO)
Nio stock has been an underperformer in the last 12 months. During this period, the stock has declined by nearly 28%. However, Nio is positioned to survive and grow in an intensely competitive market — and NIO stock looks attractive at current levels.
In terms of downside, chip shortage was one reason that kept the stock depressed. Nio has also pursued equity dilution and that has kept the stock subdued. However, Nio ended the third quarter of 2021 with cash and equivalents of $7.3 billion. Additionally, the company raised $2 billion from a recent at-the-market offering. Therefore, Nio is well financed to pursue aggressive growth and market expansion.
Nio plans to launch three new models in 2022. This is one catalyst for stock upside. New launches will ensure that vehicle deliveries remain robust. Additionally, Nio has already expanded in international markets with initial presence in Norway. In the coming quarters, the company will be expanding presence in more European countries. International expansion will also support deliveries growth.
The company has also witnessed steady growth in vehicle margin. As deliveries continued to increase, operating leverage will ensure that key margins continue to improve. Another reason to like Nio is significant investment in research and development.
Overall, Nio stock looks attractive with the company positioned to grow even amidst increasing competition.
XPEV stock has been trending higher as of late, and this rally has been backed by robust growth in vehicle deliveries. In turn, Xpeng is another name among Chinese electric vehicle stocks that’s positioned for survival and growth.
For Q3 2021, XPeng reported vehicle delivery growth of 199.2% to 25,666. More specifically, the company’s P7 model was the key catalyst for deliveries growth.
Along with growth in deliveries and revenue, XPeng also reported healthy margin growth. For Q3 2021, the company’s vehicle level margin was 13.6% as compared to 3.2% in Q3 2020.
XPeng also has a healthy cash buffer of $7 billion to pursue aggressive growth. In November 2021, the company also launched its fourth smart EV model, the G9. This will be the company first mass-produced Smart EV that supports XPILOT 4.0.
It’s worth noting that XPeng has pursued international expansion ahead of Nio. Europe is an attractive market and Chinese electric vehicle companies are positioned to benefit in the coming years.
XPEV stock has been in an uptrend, and I believe that the rally is likely to sustain in 2022. Growth in China, international expansion and new model launches will ensure robust deliveries in the coming quarters.
EV Stocks to Buy: Li Auto (LI)
LI stock is another name among under-performers that looks attractive. I believe that the stock is poised for a strong rally in 2022.
For Q3 2021 reported on Monday, Li said its vehicle delivery growth jumped 190% to 25,116. And for Q4 2021, the company has guided for between 30,000 and 32,000 vehicle deliveries. It’s worth noting that the company still has one model in the market. With new launches in the pipeline, Li Auto is well positioned to sustain strong growth.
Besides new vehicles in the pipeline, Li Auto has also been aggressively expanding its retail network. As of Q3 2021, the company had presence in 86 cities with 162 retail stores. Expansion in more cities will also ensure that deliveries growth remain strong.
Another point to note is that the company reported operating cash flow of $336.7 million for Q3 2021. For the same period in 2020, the company’s free cash flow was $136.9 million. With $7.58 billion in cash and equivalents coupled with healthy cash flows, the company has a strong balance sheet.
Financial flexibility is an important factor with the company exploring the possibility of an offshore production base. It’s likely to be in Europe. Li Auto, therefore, has ambitious plans and the market response to the company’s first model has been positive. Considering these factors, Li stock looks attractive and positioned for a strong rally.
Even with intensifying competition and loss of market share, Tesla remains the leader among electric vehicle companies. In fact, TSLA stock has also surged by 93% in the past month.
The first point of focus is the company’s balance sheet. As of Q3 2021, the company reported $16.1 billion in cash and equivalents. For the last quarter, Tesla also generated $1.3 billion in free cash flows. Tesla has ample financial flexibility to invest in innovation.
Moreover, it’s worth noting that Tesla already has manufacturing presence in the United States, Europe and China. Once new giga-factories gain operating leverage, Tesla is likely to witness further growth in free cash flows.
At the same time, vehicle deliveries have remained robust. Even with the challenges related to the chip shortage. It’s worth noting that Tesla launched Model S Plaid in June 2021. The sedan has a 520-miles range. Elon Musk expects that the model is likely to be launched in China in March 2022. I believe that the launch will continue to support deliveries growth. Additionally, Cybertruck is due for deliveries in 2022.
Overall, TSLA stock looks attractive for the medium to long-term even after the recent rally. The company is likely to remain the market leader with innovation and a strong production capability in key markets.
EV Stocks to Buy: Lucid Group (LCID)
LCID stock has witnessed a strong rally over the past six months, surging by more than 170%. With that in mind, it might make sense to wait for some correction. However, Lucid seems to be among the players that’s positioned to survive in the coming years.
A key reason to be bullish on Lucid is innovation. In September, the company announced that Lucid Air Dream Edition Range has received an official EPA rating of 520 miles of range. This is the longest range EV ever rated by the EPA. More recently, Lucid Air was rated car of the year by MotorTrend.
Furthermore, Lucid Motors has already commenced deliveries of the Dream Edition. As of November 2021, there were more than 17,000 reservations, which implies an order book of $1.3 billion. The initial response has been encouraging. And with a wider launch, the company is positioned for growth in 2022 and beyond.
Additionally, Lucid already has a strong marketing team in the United States, Europe and Middle East. With a strong cash buffer and global expansion plans, the company is at a growth inflection point.
On the flip-side, cash burn is likely to sustain in the coming years. The company will need additional funding and equity dilution might be on the cards. However, the stock remains attractive for the long-term and is worth accumulating in dips.
After listing through a special purpose acquisition company (SPAC) business combination, ARVL stock has witnessed significant correction. At current levels of $9.42, it seems that the downside risk is capped. However, the stock has meaningful upside potential.
As an overview, Arrival is in the production of commercial electric vehicles. This includes buses, vans and cars. A factor that sets Arrival apart from peers is the micro-factory approach to production. The company can build micro-factories in quick time and it has a low capital expenditure.
As an example, the company’s Rock Hill bus micro-factory will commence production in Q2 2022. The factory will require a total capital expenditure of $50 million. Low capital expenditure implies that the company can build multiple micro-factories globally that are tailor-made for customer requirements.
It’s worth noting that Arrival already has orders from United Parcel Service (NYSE:UPS) for 10,000 vans. UPS also has the option to further order 10,000 vans. As the company’s order backlog swells and production commences, ARVL stock is likely to trend higher.
Recently, Arrival raised $337.8 million from a follow-on public offering. The company is well positioned from a financial perspective to scale-up manufacturing in the next few years through multiple micro-factories.
EV Stocks to Buy: Fisker (FSR)
While the first SUV launch is still one year away, FSR stock looks attractive. In the last six months, the stock has jumped by 62%. If we go by the language of the markets, there are reasons to be bullish on Frisker.
An important point to note is that as of November 2021, the company reported $1.4 billion in cash and equivalents. The company seems fully financed for the launch.
Another positive is that Frisker already has 18,600 reservations, so the initial bookings seems encouraging. Frisker also has ambitious plans for four vehicle offerings through 2025. This is likely to ensure that vehicle delivery growth is robust in the coming years. The company is targeting 200,000 to 250,000 annual unit sales by 2025. This does not seem unrealistic considering the growth potential for the EV industry for the next few years.
I also like the fact that Fisker is initially utilizing Magna (NYSE:MGA) as a contract manufacturer. This reduces the initial capital requirement. Furthermore, it also accelerates the time-line for the first launch.
Overall, FSR stock is worth accumulating on corrections. The company has an ambitious line-up of vehicles and the initial booking suggest a positive market response.
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 modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.