Electric vehicles are the future, but investing in this space is not as simple as it seems. The EV market may be booming, with dozens of new companies popping up every year trying to cash in on this mega trend. However, the reality is that only a handful of these players have what it takes to deliver truly outsized returns for investors over the long-run.
The problem is that the EV sector is fiercely competitive. In China, any new startup has to contend with EV giants like BYD (OTCMKTS:BYDDF) that have a massive head start. And in the Western world, besides BYD, there is the 800-pound gorilla known as Tesla (NASDAQ:TSLA) dominating the market. So, finding small EV stocks that can grow large enough to deliver 10X or 100X returns is quite challenging in this environment.
However, I do think these undervalued growth stocks can be found, for those looking in the right places. The key is to find companies that are rapidly growing deliveries and taking market share, while also keeping cash burn relatively contained. Many EV startups make big promises but end up drowning in losses, which limits their upside. But some are growing sales efficiently and ramping up production of quality EVs, putting them on the path to profitability.
Many such EV picks are still flying under Wall Street’s radar for the most part, meaning you can get in early before the crowd bids them up. Here are three I’m looking at right now.
Li Auto (LI)
Li Auto (NASDAQ:LI) is the one pure-play EV startup stock on this list that I am most confident in for delivering stellar returns over the next decade. While there are many emerging EV startups grabbing headlines with bold promises and flashy prototypes, most lack the track record and financial profile that provide the confidence these companies can deliver for buyers and investors over the long-term. Many of these startups are still years away from mass production and profitability, often burning through cash at an alarming rate. That is a recipe for potential shareholder dilution down the road.
Li Auto takes a different approach. Rather than make promises, the company has executed. In fact, over the first half of 2023, Li delivered more than 86,522 vehicle, with sales on track to double year-over-year. Li Auto is already profitable on a net income basis, a rarity among EV startups. Its focus on large, higher-priced electric SUV models tailored for the Chinese market has fueled tremendous growth. Accordingly, with revenue forecast to climb from $16 billion this year to nearly $66 billion in 2032, Li Auto has a long runway for expansion.
Yet, despite this tremendous growth trajectory, LI stock trades at just 2-times 2023 sales. Compare that to most other EV makers valued at 5-times or 10-times sales (or often more). This disconnect presents a huge opportunity for upside in Li Auto’s shares. The stock could easily double or triple over the next few years based on fundamentals alone as profits ramp up. With China’s surging EV demand, Li has the potential to deliver 10-100X returns down the road for patient investors buying at today’s prices.
Naturally, competition is fierce in Li’s core market. But the company’s mix of profitability, attractive valuation, and impressive growth in the world’s largest EV market makes it my top pick to turn $1 invested into $100 over the long haul. The company has carved out an enviable niche that sets it apart from struggling EV startups. The consensus one-year upside potential is 53% for LI stock, which is very good for an EV company in this environment.
ChargePoint (CHPT)
ChargePoint (NYSE:CHPT) is an intriguing EV infrastructure stock that has faced much debate lately. Bulls tout its massive charging network and first-mover advantage in the space. Bears point to continual share dilution and mounting losses. In my view, both sides have valid points. But weighing the pros and cons, I believe now is an opportune time to take a starter position in CHPT stock.
Let’s address the bear case first. ChargePoint has heavily diluted shareholders over the past year, with its share count increasing by more than 5% per quarter. More dilution may still come, as the company invests aggressively to expand its network. Losses also continue to mount, with ChargePoint potentially three years away from profitabilit, if analyst estimates are correct.
However, I expect this pace of dilution to slow going forward. Much of the damage has already been done on that front. And ChargePoint’s push toward profitability should steadily alleviate dilution concerns over the next two to three years. Analysts see ChargePoint turning profitable by 2025 (company FY26), with earnings per share potentially reaching 5 cents that year.
Thus, while further dilution risk exists, I believe this risk is offset by ChargePoint’s massive long-term growth potential in the booming EV charging market. EV sales growth is vastly outpacing growth in charging infrastructure right now. Governments worldwide are allocating billions of dollars to fund new charging stations over the next decade. Accordingly, as a first mover and leader in the space, ChargePoint is poised to capitalize on this enormous opportunity to a greater degree than most of its peers.
Admittedly, fierce competition looms in the U.S. from Tesla’s charging network. I expect ChargePoint’s primary growth driver to be Europe, where its network already spans major markets. Still, with charging infrastructure demand set to soar globally, ChargePoint has a visible path toward becoming a much larger, profitable company in the long-term.
CHPT stock now trades at just 0.2-times 2032 (company FY33) sales. While operational risks persist, I believe ChargePoint presents an attractive risk/reward opportunity at current levels for investors with a multi-year time horizon. The EV charging megatrend is undeniable, and ChargePoint has placed itself at the forefront. Patience may be required for this investment to pay off, but CHPT stock offers intriguing multi-bagger potential from today’s discounted valuation. The consensus Wall Street analyst upside potential for CHPT stock sits at 326% over the next year.
Aehr Test Systems (AEHR)
Aehr Test Systems (NASDAQ:AEHR) offers massive upside potential amid the current EV boom as a semiconductor equipment supplier rather than a direct EV play. Aehr provides vital test and burn-in equipment used in producing silicon carbide chips, which are integral to EVs and charging infrastructure. Surging silicon carbide demand has fueled incredible growth for Aehr. Yet, the stock trades at just 12-times 2025 earnings (company FY26), presenting the opportunity for investors seeking multi-bagger returns over the long-term.
Aehr also reported record Q1 revenues, up 93% year-over-year. Strength came from its proprietary WaferPak contractors, which saw a substantial increase in sales.
New customer momentum also continues. Aehr recently landed a new U.S. silicon carbide customer that serves the key automotive, solar, industrial, and medical markets. This customer joins five other silicon carbide chip makers utilizing Aehr’s systems. And engagements with potential new customers, including major auto suppliers and gallium nitride players, have Aehr very busy.
Silicon carbide demand growth is surging beyond simply electric vehicles to areas like industrial, solar, and electric trains. MarketsandMarkets forecasts a total silicon carbide market which could be valued at more than $11 billion by 2028, representing a compounded annual growth rate of 36.4%. This reality significantly expands Aehr’s addressable market, compared to what most investors focus on (just EVs).
Between growth in the EV sector, expanding use cases, and customer momentum, Aehr expects to provide revenue growth of more than 50% this fiscal year. Additionally, earnings are forecast to grow 90%. For a small company operating in the hottest semiconductor markets, this current valuation leaves ample upside ahead.
Of course, risks exist around customer concentration and lumpy sales cycles. But with strong tailwinds at its back, I expect AEHR stock to continue growing at a rapid clip. As silicon carbide adoption enters its next growth phase in the coming years, Aehr is primed to be a major beneficiary. The average Wall Street analyst sees 152% upside over the next year for this stock.
On the date of publication, Omor Ibne Ehsan 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.
