Tesla (NASDAQ:TSLA) currently trades at 8.6x sales. TSLA shares are up more than 127% year-to-date. If I’m considering undervalued EV stocks to buy, Tesla would not be it.

Who are the undervalued EV stocks to buy? 

Well, they trade for less than 8.6x sales. An appropriate criterion for a cut-off point would be a P/S ratio of half that amount. 

So, I’m searching for an automotive stock that trades for less than 4.3x sales. According to Finviz.com, there are 17 automotive manufacturers with a market capitalization of more than $1 billion. It is from this group I’ll find my three undervalued EV stocks.

A quick look tells me that out of the 17, nine have a P/S ratio of less than 4.3. That narrows the field if I restrict the possibilities to stocks with a positive forward P/E ratio, which reduces the field even further to six. 

Toyota Motor (TM) 

Toyota Motor (NYSE:TM) hasn’t exactly embraced electric vehicles. While other traditional producers of internal-combustion-powered (ICE) vehicles have delivered several EVs, Toyota has only one: the bZ4x.

Toyota chairman Akio Toyoda, the 66-year-old grandson of the company founder, stepped down as CEO in early January, saying that he was an old-fashioned car guy who couldn’t gather the passion to get behind EVs. 

I’m paraphrasing to a certain extent, but the electrification job now falls on Koji Sato, the head of Lexus, the company’s luxury brand. 

Toyoda believed the industry needed to hedge its bets by investing in alternatives to EVs, such as hybrids, plug-in hybrids (PHEVs), hydrogen-powered vehicles, etc. His rationale had much to do with the massive infrastructure necessary to flick the switch from fossil fuels to electricity. He just thought it was too much, too quickly. 

Now, Sato will lead the way forward and should accelerate the company’s move into EVs in 2024 and beyond.

TM stock trades at 0.95x sales and 10.7x forward earnings. If this were any type of company other than an auto manufacturer, you would be all over it. 

Toyota will figure it out. They always have. 

Volkswagen (VWAGY)

I most recently wrote that Volkswagen (OTCMKTS:VWAGY) was one of three EV stocks with the potential to deliver a 10-fold return for investors over the next decade, arguing that VW brings the type of global scale needed to capture global market share.

I failed to mention that VW’s stock is so cheap right now—P/S of 0.19 and forward P/E of 4.28—that Toyota looks overpriced. 

The company reported its Q3 2023 results at the end of October. Sales for the first nine months of 2023 were up 16%, to 235.1 billion euros ($255.1 billion), with vehicle sales up 8% to 6.8 million units. Its operating profit of 18.7 billion euros ($20.3 billion) was 11.8% of its Passenger Cars revenue of 158.8 billion euros ($172.3 billion) and 8% higher than a year ago.

As Volkswagen said in mid-October, the company delivered 531,500 all-electric vehicles (BEVs) in the first nine months, 45% higher than a year ago. In the third quarter, its BEVs accounted for 9.0% of total vehicle deliveries between January and September. 

While the entire industry has slowed production as we enter 2024, VW hasn’t taken its foot off the gas pedal. Plenty of growth is ahead at a valuation lower than it’s been in the past decade.

Li Auto (LI)

While my recent EV article chose BYD (OTCMKTS:BYDDY) over Li Auto (NASDAQ:LI) as one of three stocks with the potential to grow tenfold, I wanted to include at least one Chinese company. It is a better bet than Nio (NYSE:NIO) or Xpeng (NYSE:XPEV).

CNBC reported on Nov. 9 that it sold 40,422 vehicles in October—41.2% more than Tesla. It confirmed that it would continue to deliver between 41,700 and 42,600 vehicles each month to the end of the year. 

Interestingly, and I confess I did not know, Li’s SUVs come with a gas tank used to charge the battery. Its first battery-only model comes out in February 2024. By the end of next year, it will have launched four BEVs. 

The company is eschewing expansion to other countries at this point, opting to invest in the development of autonomous driving technology so that it can compete in the EV market more effectively. 

Li isn’t nearly as cheap as VW or Toyota at 4.0x sales. However, it’s grown revenue 442% annually over the past three years, justifying a much higher multiple than the two legacy automakers. 

2024 is a make-or-break year for Li Auto. 

On the date of publication, Will Ashworth 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.