Prices for oil and gas have been skyrocketing and consumers have been feeling the pain at the pump.
The national average price for gas was over $4.29 per gallon on Thursday, slightly down from a peak of $4.33 per gallon on March 11, but 54% higher than a year ago.
Crude oil hit $139 per barrel last week — a level not seen since 2008 — drifted back down below $100 per barrel earlier this week and is now rising again, reaching $106 per barrel this morning.
As dramatic price increases have many consumers pondering a shift to electric vehicles (EVs), Wall Street continues to weigh the impact of U.S. and U.K. bans on purchases of Russian oil. Other oil traders and shippers are rejecting Russian oil as well. All told, three million barrels of oil per day could be lost to the international market by April because of the sanctions, the International Energy Agency said.
Europe gets about 40% of its gas from Russia and is currently paying the country about $722 million per day for gas, or about triple what it was paying before Russia invaded Ukraine. Countries like Germany, Italy and other Eastern European nations continue to rely heavily on Russian imports.
Meanwhile, the Biden administration has been in talks with Venezuelan authorities to reestablish diplomatic ties, and potentially gain access to more oil, while talks among U.S. negotiators and Iranian officials are underway on a new nuclear deal that could bring Iranian oil to the market again. President Biden is apparently even considering a state visit to oil-rich Saudi Arabia.
Prices for other commodities also continue to oscillate, including the nickel that goes into the latest lithium-ion batteries for many EVs. Russia and Ukraine are major nickel suppliers to the world.
Now, the nickel shortage has complicated the world’s push for green energy. The fact is that new lithium-ion batteries are comprised of anywhere from 33% to 90% nickel. Prior to the Russia-Ukraine conflict, there was already a shortage of lithium-ion batteries. What this means is that the acute battery shortage will persist, and lithium-ion battery prices will rise.
However, EVs are also not going away. Despite the global pandemic, supply chain issues and semiconductor shortages, EV sales reached 6.6 million in 2021 — a tripling of market share from two years prior. And EV sales are projected to be about 29.5% of all new car sales in the U.S. by 2030, up from about 3.4% last year.
Interestingly, Porche just said is all-electric Taycan sedan is outselling the 911 sports car and represented about 14% of the company’s total vehicles sold in 2021. EV sales are going so well, Porche is looking to sell a hybrid 911 model. By 2030, the company expects 80% of its global sales will be all-electric vehicles.
So, in my opinion, the biggest result from the nickel and battery shortage is that EVs will remain scarce in the near term — and companies will be able to charge a premium for them.
Tesla Approved in Germany
Tesla (NASDAQ:TSLA) is one recent example. The company recently announced that, because of rising material costs, it will raise prices for its Model Y and Model 3 vehicles by $1,000 each.
Chinese EV maker XPeng (NYSE:XPEV) also just said it will raise prices from about $1,500 to $3,000 per vehicle starting March 31.
Speaking of Tesla, the company also announced its Gigafactory near Berlin, Germany, got approved to start commercial production and gained a conditional license for the company’s vehicle and battery plants in Brandenburg.
The company will be able to make up to 500,000 vehicles at the facility per year when final approvals are given.
RIVN’s shares dropped 13% and kept falling after the company reversed course on a plan, in the face of rising costs for parts and materials, to retroactively increase prices by up to 20% on customers who’d already pre-ordered its truck. CEO RJ Scaringe then quickly walked back the move in an apology to customers.
The company also reported disappointing fourth-quarter results, missing analysts’ estimates for the top and bottom line. An earnings loss of $2.43 per share missed expectations by $0.46 per share, while earnings of $54 million fell short of Wall Street’s estimates by $6.72 million.
The company also revealed that because of supply chain issues it expects to produce 25,000 vehicles this year, compared to the 40,000 analysts were hoping for.
Rivian is also following Tesla in China and will start using less efficient iron-phosphate batteries that also use a lot of nickel. By utilizing cheaper and less efficient iron-phosphate batteries, Rivian is also effectively cutting the price of the components in its EVs. This just demonstrates how EV manufacturers are struggling with the shortage and higher prices of lithium-ion batteries.
RIVN shares are down nearly 59% so far this year and are nearly 46% below the stock’s IPO price of $78.
LCID stock also dropped recently after said it had to significantly cut its 2022 vehicle-production target from 20,000 units to a range from 12,000 to 14,000 vehicles, or by up to 40%.
CEO Peter Rawlinson said difficulty obtaining parts like glass and carpet, instead of semiconductors, are the main cause of the production delay.
The company has so far delivered about 300 of its Lucid Air Dream Edition to customers. LCID also said it would delay the release of its Gravity SUV until the first half of 2024, instead of in 2023 as previously planned.
LCID also reported its fourth-quarter financial results in late February. An earnings loss of $0.30 per share was in line with analysts’ estimates, while sales of $26.4 million fell nearly 60% short of Wall Street’s expectations for $59.9 million.
Over the past month, Tesla shares have fallen less than a percentage point while Rivian dropped 35% and Lucid dropped 12%, compared with the S&P 500’s 1% rise.
RIVN is too young a company to be graded by my Portfolio Grader, but as you can see below, LCID currently receives an Overall Grade of “C,” meaning the stock is a hold and we should look elsewhere for fundamentally superior electric vehicle stocks.
The bottom line: Neither RIVN nor LCID are attractive buys at the moment.
However, that’s not the case for Ford (NYSE:F), which is also knee-deep in the electric vehicle game.
For its fiscal year 2021, Ford achieved total revenue of $126.15 billion and adjusted earnings of $1.59 per share, the company reported at the beginning of February. That compares to revenue of $115.89 billion and adjusted earnings of $0.36 per share in fiscal year 2021. However, these results also fell short of expectations for earnings of $1.93 per share and revenue of $126.31 billion.
However, I wouldn’t write the company off just yet. It recently became the number-two seller of electric vehicles in the U.S. in 2021. The company also recently announced it plans to launch three new electric passenger vehicles and four new electric commercial vehicles in Europe over the next two years. By 2026, the company expects to sell more than 600,000 EVs across Europe.
Ford is also very optimistic about 2022. Full-year 2022 adjusted EBIT is expected to increase between 15% and 25% year-over-year, or $11.5 billion and $12.5 billion. Adjusted free cash flow is expected to come in between $5.5 billion and $6.5 billion.
My Portfolio Grader is pretty optimistic about Ford Motor, too, as it gives it an overall B-rating.
So, I fully expect Wall Street to remain obsessed with companies that can raise prices like Tesla has managed to do and profit in the current inflationary environment… and then begin to soar once supply chain woes abate…
Fortunately, my Growth Investor Buy Lists are chock-full of these companies — and we’ve seen Wall Street pouring into them recently.
And I expect we’ll likely see the flight to quality really heat up in the second half of March, as quarter-end window dressing gets underway.
Remember, quarter-end window dressing occurs when institutional investors and fund managers shore up their portfolios to make them “pretty” for their clients. In other words, they tend to load up on the best-performing stocks from the quarter, i.e., my fundamentally superior stocks, which ignites forced buying pressure under many of these positions.
The bottom line: Our best defense remains a strong offense of fundamentally superior stocks.
And you don’t have to look any further than my Growth Investor Buy Lists. For more information on my Growth Investor stocks, I encourage you to sign up for my Growth Investor service today. Once you do, you’ll have full access to my latest recommendations — including the most recent additions to my Growth Investor Buy Lists.
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