Electric vehicle (EV) affordability remains the biggest EV adoption hurdle. That puts companies in a bind. If profitable EV stocks are to be common, instead of the exception, they have to balance battery costs and features to bring the price tag down to petrol-powered expectations.
After strong 26.5% returns in 2023, Blackrock’s (NYSE:BLK) iShares Electric Vehicles and Driving Technology UCITS ETF (ECAR) has only gained 2.51% value since the start of the year. Nonetheless, some EV companies keep instilling investor confidence with robust profitability.
Here are three profitable EV stocks for investors to consider.
Li Auto (LI)
For three consecutive quarters, Chinese Li Auto (NASDAQ:LI) delivered positive net income, rising from $136 million in Q1 ‘23 to $386 million in Q3 ‘23. In the latest report for Q4 ‘23 released on February 26th, Li Auto delivered 376,030 EVs for the full year, an impressive 182% increase from 2022.
Li Auto’s sales racked up to $5.69 billion for the quarter, having increased by 133.8% from the year-ago quarter ending up with $810.2 million net income. Although the Chinese automaker increased operating expenses by 82.4%, the gross margin actually went up to 23.5% from 20.2% in Q4 ’22.
Likewise, indicating profit left after covering all costs, Li Auto’s operating margin went from negative 0.8% in that quarter to positive 7.3%. The company’s price-to-earnings ratio was 28.27 in 2023, forecasted to be a lower 17.53 in 2024.
Given that Li Auto aims to become the premium SUV EV brand and if the earnings keep up, LI shares could represent a buying opportunity in the form of American Depositary Shares (ADS).
The average LI price target from analysts is $57.25 vs. its current price of $39.72. The high estimate, 12 months ahead, is $82.36 vs. the low forecast of $39.98, slightly above the present price level.
Tesla (TSLA)
Amid overboughtness, Tesla (NASDAQ:TSLA) is down 29% since the beginning of the year. Despite the price correction, Elon Musk’s EV project has been in a consistently positive net income zone since Q2 2019, making it one of the most robust profitable EV stocks.
For the full year 2023, Tesla delivered 1.81 million EVs, which is 38% year-over-year (YoY) growth. The company’s net income grew by 115% YoY, while income from operations was squeezed by 47% for the same period. Notwithstanding these headwinds, Tesla’s free cash flow increased by 45% to $2 billion.
In the Q4 2023 earnings report, Tesla disclosed a 23% decrease in gross profits year-over-year. The company’s total EV revenue was $21.5 billion, marking a marginal increase of 1% for the quarter.
Tesla’s low debt-to-equity ratio gives the company future flexibility. That room is allowing it to start a new lineup of EVs codenamed “Redwood,” expected to launch in mid-2025. At an entry-level price tag of $25,000, Tesla is counting on breaking the EV affordability ceiling that hampers demand.
Combined with the increased output from its gigafactory in Texas, Tesla’s growth is likely to ramp up after a period of slowed growth. Analysts give TSLA an average price target of $204.59 vs. current $177.54. The high estimate is $320 vs. the low forecast of $24.33 per share.
ON Semiconductor (ON)
Not technically an EV company, ON Semiconductor (NASDAQ:ON) powers the sector with its silicon carbide (SiC) and gallium nitride (GaN) transistors, EliteSiC, IGBT and SiC MOSFET modules critical for EVs to run.
In other words, just as MicroStrategy (NASDAQ:MSTR) is a proxy for Bitcoin (BTC-USD), ON is a proxy for the EV sector. For the last four consecutive quarters, the company beat earnings per share estimates. In its latest Q4 FY23 report, ON beat forecasted EPS, coming in at $1.25. The company’s revenue remained relatively flat at $8.2 billion compared to $8.3 billion in a year-ago quarter.
As an EV exposure, ON shares represent one of the safest bets. After all, both small and established automakers will need the company’s parts as governments continue to phase out petrol-powered vehicles. Analysts average ON’s price target at $88.60 vs. the current $82.59. The high estimate is $115 vs. the low forecast of $60 per share.
On the date of publication, Shane Neagle 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.
