A popular theme for investing since the pandemic has been the electric vehicle market (EV). Tesla (NASDAQ:TSLA) paved the road for an army of followers to trek. Dozens of new entrants tried, but the field of contenders is shrinking. Today we present three EV stocks to buy in this crazy market.
The investor sentiment counts for a lot with this sector. Fans of these stocks are passionate about their tickers. I know this first hand from the comment sections in my YouTube videos about them. Hyliion (NYSE:HYLN) and Lordstown (NASDAQ:RIDE) were two that usually solicited hot debates. I used the past tense just now on purpose because the passion is abating. Of late I have not received much heat from negative comments about their charts. The post-pan newer breed of investors may have finally found their limits. They may now realize that there are laws of physics even on Wall Street and stocks. Eventually, reality catches up with hype regardless of popular the stocks.
Nikola (NASDAQ:NKLA) warned us early, but most ignored it and the losses piled up. I am not picking on these poor stocks, but they do serve as an appropriate example. My rules for investing are simple and they always involve having current fundamentals. I prefer studying tangible results from financial metrics over believing a pie-in-the-sky forecast.
That was my main problem with investors betting fortunes on companies that have no sales. I’ve stayed consistent with my message to warn investors of the danger of averaging down. This is a losing habit that can only work with stocks on solid footing. Even then, the results are iffy at best. Doubling down on a problem trade simply makes your problem bigger.
The companies looking to capitalize on the EV revolution are not all vehicle makers. There is an ocean of other brands looking to break through somehow. No, I don’t mean the Fisker (NYSE:FSR) Ocean brand of cars, but peripheral support businesses. Charging stations is a popular segment like Blink (NASDAQ:BLNK), for example.
The EV opportunity has a long runway ahead of it. The world needs to replace the production of 100 million vehicles per year eventually. Therefore, I can safely assume that the stocks of all current leading companies will prosper wildly. Here are three EV stocks to buy now that are atop of my list:
EV Stocks to Buy: Tesla (TSLA)
It is only apt to start with the king of EV’s and that’s Tesla. The company was near death as recently as three years ago, if you believed the critics. I am a convert as I also doubted in its earlier years, yet I avoided shorting it. But once their cash from operations flipped positive, I saw the light.
Now it is in control of its own destiny and not needing to borrow simply to exist. Since 2019 they have tremendously improved their financial metrics. It now generates about $6 billion in cash.
TSLA stock has benefited as it soared to extreme heights. Since Thanksgiving of 2019, TSLA stock appreciated an astonishing 2,140%. That statistic alone makes it a must own for the long term. Investors who willingly ignore success like this must be allergic to it. Smart money seeks winners and this one most definitely is atop of that list. If my goal is to eliminate the questions then taking the strongest EV company stock is an easy decision.
Under the leadership of its CEO Elon Musk, Tesla even carved itself a leading role in the S&P 500. It is now the No. 1 on the list of EV stocks to buy, and an overall leader of indices. The odds of it failing from here are slim to none. In fact, the legacy car makers will need to learn its tricks even from an operational standpoint.
For example, TSLA generates $14 billion in gross profit out of only $54 billion in revenues. That is double the rate that Ford (NYSE:F) or General Motors (NYSE:GM) delivered in the last 12 months. Clearly, they will have to find better ways to compete with Tesla.
Nio (NIO)
In my book, Nio is in second place in this race for dominance among EV stocks to buy. The legacy automakers may surpass Nio deliveries soon, but among the new companies, it’s right behind TSLA. Keep in mind that they effectively started in 2015 (November 2014) and they have kept a hectic pace. The company just reported delivering more than 6,100 vehicles in February. That’s a yearly rate of more than 70,000, GM has a long way to go apparently.
The current financial metrics are already impressive and earn it a spot on the list of EV stocks to buy. Management is cranking on all cylinders even if their cars don’t have them. Regardless of what advantages they had from the government, it’s right there in black and white. The company did this while only focusing on its domestic market. Albeit it is the largest market of all, imagine what they can do when they expand abroad. There is no reason why they can’t maintain the growth rate for as long as the EV market is this vast.
There might be some logistical hindrances to do it their current way elsewhere. Their model of having the battery as a consumable might not be easy to replicate outside of China.
EV Stocks to Buy: Lucid Motors (LCID)
My third candidate for EV stocks to buy into these turbulent times is in fact my least favorite. This is not that it’s the worst car, in fact, quite the opposite. Experts make the argument that is the most advanced and certainly the prettiest. The range they claim is also the longest and would help buyers overcome the range anxiety from others.
But that’s only part of the problem. The price is too high. So I would like it more if the car had a more widespread reach. Only the 1 percenters can afford this first run of models. Also, it is the newest company, so their financials are still not a selling argument.
In the long term, I am confident Lucid will sell out of every car they make. And this brings me to the second problem and that’s production. Based on their latest update, their production runs are still in square one.
I take issue with the experts calling it a Tesla killer. It’s not even a fraction of Nio’s size in units. Monday management reported earnings and the stock collapsed on the headline. I would ignore the financial metrics because they are still effectively in pre-production mode. But they slashed their production forecast for the year. Investors hated that as the news hit them in their hopium glands.
Wall Street is already on edge, so they won’t tolerate bad news one bit. Coming into the earnings LCID rallied 10% on Monday. But from that high to the low last night it fell almost 20%.
So far, it is not my favorite of the EV stocks to buy in theory. But this is a dip serious enough to warrant considering a starter position for the long term. If I already own stock I don’t average down on this. Just like any new trade this quarter, I would suggest investors only deploy partial risk. Leaving room to add later may be the difference between success and failure.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.
