- Electric vehicle sales are expected to grow exponentially, thanks to government mandates and positive consumer disposition.
- BYD (BYDDF): Resilience shown by the Chinese EV maker against a tough geopolitical and macroeconomic backdrop makes it a top buy.
- Nio (NIO): Positive inflection is in the cards when external factors cease to drag performance.
- XPeng (XPEV): Nimble startup dynamically adapting to evolving conditions.
- Li Auto (LI): An under-the-radar EV stock that could take off in a big way.
- Tesla (TSLA): Pullback presents an attractive entry point and the imminent stock split could reignite rally.
- Lucid (LCID): Superior vehicle lineup and Saudi connection can help differentiate vis-à-vis other startups.
- Ford (F): Vertical integration and proactive EV strategy.
The electric vehicle (EV) space is sporting reasonable valuations, thanks to the correction witnessed amid the current geopolitical and macroeconomic turbulences. After peaking at $57.71 on Nov. 22, 2021, the iShares Self-Driving EV and Tech ETF (NYSEARCA:IDRV) has pulled back notably toward its lowest level in about 1-1/2 half years.
Apparently, there is a mismatch between valuations and the outlook for EVs. There is no denying of the fact that the present is tense for the industry. Components are in short supply and the Covid lockdowns in China hasn’t helped matters any further. The demand picture isn’t very encouraging as well, as inflation and a rising rate environment have set tongues wagging about demand destruction.
For those willing to look past the current noises, the rewards could be disproportionate. The largest automotive markets of the world, namely the European Union, U.S. and China will look to greatly expand EV capacity by 2035, management consultancy firm McKinsey estimates. If full-electrification target for the year is hit, just imagine the kind of potential opportunity before EV makers.
The selloff, therefore, presents an opportunity to dip your toes into the EV industry. Here are a few stocks you can pick up as bargain buys. I have intentionally avoided non-starters and those facing teething troubles.
|BYDDF||BYD Company Limited||$32.27|
|LI||Li Auto Inc.||$23.89|
|LCID||Lucid Group, Inc.||$17.54|
|F||Ford Motor Company||$13.40|
Electric Vehicle Stocks to Buy: BYD (BYDDF)
Shenzhen, China-based BYD (OTCMKTS:BYDDF) is one EV stock that has surprised me with its resilience. This Warren Buffett-backed company has consistently delivered against all odds even when the going has been tough for the industry as a whole.
April deliveries reported earlier this month stand testament to this fact. When global EV market leader Tesla (NASDAQ:TSLA) sold merely 1,512 vehicles in China, BYD delivered 57,403 units of battery EVs, up 270% year-over-year. Defying the Covid lockdowns and supply challenges, it produced 57,593 BEVs.
As a policy, BYD stopped manufacturing internal combustion engine (ICE) vehicles from March.
The company has been actively exporting to overseas customers, particularly in Latin America and Africa. Apart from its thriving EV business, the company is into the manufacturing of batteries for EVs. It takes away the third position among battery manufacturers, commanding roughly 12% share of the overall market.
Since the start of the year, BYD’s stock trading over the counter has shed about 16%.
Nio (NYSE:NIO) may have tested the patience of its loyal investor base but it is one sound investment trading at depressed levels. The company had a disappointing 2021 when it did not launch any new product. Come 2022, analysts and investors began pinning their hopes on a volume rebound, thanks to three new models planned for the year.
Extraneous risks, however, came upon the company like a bolt in the blue. The Ukraine war squeezed the supply chain and sent input prices spiraling upward. Even before things could stabilize on that front, the Covid resurgence in China hit domestic EV makers, including Nio.
Nio said in its April deliveries update that component supplies, production and logistics all suffered due to the lockdown restrictions in place. Moreover, Nio had to contend with delisting fears in the U.S., as it was among the companies provisionally identified by the Securities Exchange Commission for non-compliance with audit review requirement.
The company has quickly moved to mitigate this risk by expediting its Singapore listing.
Nio stock has shed about 50% year-to-date (YTD). The average analysts’ price target for Nio, according to TipRanks, is $40.61, suggesting roughly 179% upside from current levels.
Electric Vehicle Stocks to Buy: XPeng (XPEV)
XPeng (NYSE:XPEV) has been an outperformer through 2021 even as its bigger rival Nio floundered. The company has been nimble enough to adapt to changing consumer preferences and lap up new technology and markets.
The Guangzhou-headquartered company rushed in to capture most of the post-pandemic demand in China in 2021 by launching a new family sedan, named P5. It also unveiled an upgraded version of its G3 SUV. Overall, it delivered 98,155 vehicles in 2021. The product slate for 2022 includes the G9 SUV, a vehicle developed for both Chinese and international markets.
XPeng entered Norway ahead of peer Nio, marking its maiden overseas foray. It now has a presence in Sweden and the Netherlands.
Like Nio, XPeng could be in for a strong bounce back when external risks mitigate.
Since the start of the year, the stock has lost about 53%. Analysts, on average, expect the stock to double to $48.31.
Li Auto (LI)
Li Auto (NASDAQ:LI), which rounds up the U.S.-listed Chinese EV trio, comes off as a less glamorous company. It doesn’t carry out publicity campaigns around Wall Street and chooses to let numbers talk for its performance.
Recent quarterly results from the company showed a narrower loss and a 168% year-over-year revenue growth. Gross margin was at a commendable 22.6%. The Covid lockdowns, however, prompted the company to issue muted production and revenue forecasts for the second quarter.
The company plans to launch its L9 extended range SUV shortly and two more SUVs down the line in 2023.
Li Auto stock has pulled back by about 26% in the year-to-date period. The average analyst price target of $37.06 suggests 56% upside from current levels.
Electric Vehicle Stocks to Buy: Tesla (TSLA)
Any EV portfolio would be incomplete without Tesla (NASDAQ:TSLA) as part of the holdings. The company is a true global player. It currently has production units in the U.S., China and Europe, and sells EVs across the globe. The company is helmed by a visionary leader who leads from the front.
Despite the mushrooming of competition, Tesla has managed to stay ahead. Its detractors often call out the stock for being overvalued, and they may not be totally off the mark with their assessment. Tesla stock is trading at a Price/Sales ratio of 14.05, notably higher than legacy automakers and some of its EV brethren.
The premium valuation is justified, contends analysts. An updated price target announced by Cathie Wood shows the firm expects Tesla stock to reach $4,600 by 2026. About 60% of value and over half of EBITDA will come from the planned robotaxi business.
And then there is the promise of a stock split. The company said in a 8-K filing in late March it will seek shareholder approval for increasing its authorized capital in order to be able to implement a stock split. When Tesla last split its stock in August 2020, it ran up sharply after the event.
Tesla stock has shed 29% year-to-date and promises over 30% upside, based on the average analysts’ price target of $976.22.
Lucid (NASDAQ:LCID) moved into the spotlight with claims that its Air sedan has a range superior to Tesla. The company began deliveries of its Lucid Air Dream Edition in late October and it sold 125 cars to customers in the fourth quarter. They sold a further 360 vehicles in Q1 2022.
Customer reservations at the end of the first quarter totaled 30,000, tallying $2.9 billion in reservations. The company reiterated its production guidance of 12,000-14,000 units in 2022. Lucid announced in April a deal to supply the Saudi government with 100,000 vehicles over a 10-year timeframe. The company confirmed earlier this year that it plans to build an EV plant in Saudi Arabia.
The company has to be laser-focused on execution and manage its supply chain. With the recent price hikes announced in the U.S. and Canada, the pricier Air sedan models got a little more expensive.
Lucid’s stock has lost momentum and is down about 54% YTD. The average analysts price target of $30.25 suggests a 72% upside.
Electric Vehicle Stocks to Buy: Ford (F)
Among the legacy automakers, Ford (NYSE:F) has found great success with its EVs transition strategy thanks to its proactive stance. The Ford+ plan announced in May 2021 and the company’s decision to form distinct auto units, are all testament to its commitment toward a quicker transition away from ICE vehicles.
Ford hopes to manufacture 2 million EVs by 2030, and by 2035, it expects EVs to represent half of its global vehicle sales. Dearborn’s EV lineup includes the Mustang Mach E, the E-transit van and the recently launched F-150 Lightning EV truck.
The selloff hasn’t spared Ford shares either. The stock is down about 35.5% YTD. The average analysts’ price target for Ford shares is $18.40, pointing to over 37% upside.
On the date of publication, Shanthi Rexaline 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.