The S&P Kensho Electric Vehicles Index, which tracks the performance of electric vehicle (EV) and ancillary stocks, is down nearly 15% year-to-date. The index’s dilution communicates the difficulties EV companies faced this year amid elevated interest rates and a slowdown in the economic cycle.
However, I foresee an inflection point. In my view, we could experience rising consumer demand in 2024 as a global interest rate pivot nears. Moreover, inflation and interest rates remain subdued in China, with the reopening play still very much an option. Therefore, I argue that a more transparent inflation environment and talks of interest rate pivots will reignite demand within cyclical industries such as the electric vehicles space. In addition, rising demand will likely relay into the stock market to provide contemporaneous tailwinds to EV stocks. Let’s take a look at three best-in-class EV stocks that might surge in 2024.
I understand that you might be tired of hearing about TSLA (NASDAQ:TSLA) stock. However, I have a novel analysis for you today, so hear me out.
Unlike most EV companies, Tesla has reached profitability and economies of scale at a very early stage of its lifecycle. Therefore, Tesla’s operating profit margin of 15.8% comes as no surprise and looks set to increase. I base the claim on the fact that Tesla is building businesses throughout its value chain. The firm’s mega factories provide critical mid-stream representation, while its industry-leading charging stations add end-market value. Furthermore, Tesla has advanced into upstream operations via the construction of a lithium refinery in Southwest Texas, which may be followed up by mine acquisitions in due course.
Looking at matters from a market-based perspective shows that TSLA stock is undervalued. For example, TSLA stock’s price-to-sales ratio of 7.65x is at a normalized 5-year discount of approximately 26%. Moreover, TSLA stock’s enterprise value-to-sales ratio of 7.59x is at a 30% normalized 5-year discount.
TSLA stock looks set for additional gains in 2024!
RIVN (NASDAQ:RIVN) stock is in recovery mode. The asset is flashing signs of momentum as its out-of-the-money put-call ratio has dipped below equillibrium from over 1.8 in July. RIVN’s put-call ratio’s trajectory suggests that fewer tactical investors are bearish about RIVN stock’s prospects. In addition, RIVN stock has edged up above its 10-day moving average while remaining below its 50-, 100-, and 200-day moving averages, implying a reversal could be in the cards.
Keep in mind that Rivian is an early-stage growth company. Therefore, its fundamentals are highly sensitive to the economic cycle. However, despite its cyclical risks, Rivian’s short-term operational results have impressed. The firm achieved record production and deliveries in its third quarter. Rivian’s production rose by 121.4% year-over-year to reach 16,304, while its deliveries surged by 136.4% year-over-year to settle at 15,564.
RIVN stock’s price-to-sales ratio of 4.14x is well placed, especially considering Rivian is still in its early growth phase. Moreover, the stock’s EV/Sales ratio of 2.72x shows that Rivian is monetizing its asset base efficiently.
Although a risk bet, key metrics suggest that RIVN stock is groomed to surge next year.
NIO (NYSE:NIO) stock has declined by nearly 20% since the turn of the year, and a recent 10% staff reduction doesn’t add much optimism. Nevertheless, I am a buy when others are fearful kind of guy. Therefore, I decided to include NIO on the list, especially as I believe a fundamental shift is en route.
Although NIO is transitioning toward a global sales mix, China remains the firm’s salient market. China’s deflation is undoubtedly a macroeconomic risk. However, a post-pandemic reopening demand surge in China is around the corner. Factors like enhanced industrial demand in the U.S. could add a pull factor to China’s economy, in turn causing a regional cyclical demand spike in 2024. Moreover, Chinese 5-year prime rates remain below their pre-COVID levels at 4.2%, which spurs the relative lending capabilities of its consumer base.
Competition in the EV space is rising. Yet, NIO holds firm. The company has a 2.1% market share in China and is expanding rapidly in Europe. In fact, NIO’s EU operations look set to intensify as the firm is exploring a direct dealership model in Europe, which could increase sales and phase out tariffs.
Lastly, key metrics suggest NIO stock is undervalued. For example, NIO’s price-to-sales ratio of 1.82x is in respectable territory, while its EV/Sales multiple of 0.28x is absolutely splendid!
On the date of publication, Steve Booyens did not hold (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.