The electric vehicle sector is going through interesting times. The industry faces macroeconomic headwinds and intense competition has also impacted companies. Some of the best EV stocks to buy during the last bull market are languishing at lower levels.
If this is not enough, there is already chatter in the streets that the EV euphoria is dead. It’s true that automakers are scaling back on their expansion plans. However, a lot has to do with macroeconomic challenges.
I believe that the EV sector is due for a strong comeback. It’s difficult to talk about the timing. However, the best time to buy EV stocks is now. When the sector pulls back, valuations will not be attractive as it’s today.
I also believe that in the next bull market, the EV companies that will survive and grow will witness a rally. On the other hand, laggards will die a slow death. The sector is likely to witness failures and consolidation. The positive is that the winners will consolidate their position in the industry and emerge as big value creators.
Let’s therefore discuss seven EV stocks to buy before the next rally.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) stock had touched $300 in July 2023. The correction has been deep and the stock currently trades at $170. The reasons for the correction include intense industry competition coupled with macroeconomic headwinds.
However, if the EV industry must grow, Tesla is likely to remain among the top players. With innovation on the forefront, I am bullish on the stock. With an investment horizon until 2030, multibagger returns are likely.
One point to note is that Tesla has an attractive pipeline. This includes the Cybertruck, Roadster, and Tesla Semi. However, I would eagerly wait for the Company’s low-cost model. Last year, Tesla made its intention clear that the Company wants to cut EV production cost by half.
If this target is achieved, emerging markets will be a major growth driver for Tesla. Countries like India and Indonesia have a big addressable market. Overall, near term headwinds present a good opportunity to accumulate TSLA stock.
Li Auto (LI)
Amidst significant volatility for year-to-date, Li Auto (NASDAQ:LI) stock has declined by almost 20%. I see this as a good opportunity to accumulate for the long term. LI stock looks attractive at a forward price-earnings ratio of 15.5.
Starting with the bad news, Li Auto revised its Q1 2024 deliveries outlook significantly lower to 77,000. This is the reason for the sharp sell-off. The management has acknowledged the point that the “operating strategy of Li MEGA was mis-paced.” Further, it was also acknowledged that the Company “put excessive emphasis on sales volume and competition.”
While lower deliveries growth is disappointing, the management has provided an honest assessment. With the focus back on creating value for users and operating efficiency, I am optimistic on the overall outlook for the Company.
It’s worth noting that Li Auto reported a cash buffer of $14.6 billion as of Q4 2023. Further, the Company reported free cash flow of $2 billion for Q4. Therefore, financial flexibility is high for continued investment in innovation and retail expansion within China.
Panasonic Holdings (PCRFY)
For investors bullish on EVs, it’s impossible to ignore Panasonic Holdings (OTCMKTS:PCRFY). In the coming years, the Company will remain among the top players in the EV battery business. With innovation in the forefront, I would not be surprised if Panasonic potentially gains market share.
Coming to valuations, PCRFY stock trades at a forward price-earnings ratio of 7.5. Further, the stock offers a dividend yield of 2.32%. Once the rally comes, the upside potential is significant from current levels.
I also like the point that Panasonic is targeting aggressive expansion in EV battery capacity. The Company intends to quadruple capacity to 200GWh by 2031. This is likely to translate into steady revenue growth coupled with EBITDA margin expansion.
From an innovation perspective, Panasonic is targeting to increase volumetric energy density of EV batteries by 25%. This will imply higher battery range in a single charge. Further, the Company is also working on solid-state batteries for drones and factory robots.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) stock has surged by 61% in the last one month. The sudden reversal in sentiment has been backed by a big news. The U.S. Department of Energy has approved a loan of $2.26 billion for the Company’s Thacker pass project. This will help in accelerating the construction of the first phase with commercialization due in 2027.
An important point to note is that LAC stock remains deeply undervalued even after the recent rally. Lithium Americas currently has a market valuation of $1.1 billion. In comparison to this, the Thacker Pass project has an after-tax net present value of $5.7 billion. Further, the asset has a mine life of 40 years with an average annual EBITDA potential of over $1 billion.
I must add here that General Motors (NYSE:GM) has already infused $650 million in the Company. GM also has an offtake agreement for ten years from the first phase of production. With a prized asset and strong financial backing, LAC stock is poised to be a multibagger.
QuantumScape (QS)
QuantumScape (NYSE:QS) stock is among the emerging EV stocks to buy. If the Company can successfully commercialize solid-state batteries, multibagger returns are on the cards. However, it’s a high-risk bet and limited exposure should be considered.
The first positive to note is that QuantumScape is high on innovation. With 13 years of R&D, the Company already has more than 300 patents and applications related to materials, use, and processes.
QuantumScape also claims to have commercial agreements with six automotive OEMs. I must add that Volkswagen Group (OTCMKTS:VWAGY) is a strategic investor and joint venture partner. This adds credibility to the Company’s efforts towards commercialization of solid-state batteries.
In terms of progress, the Company plans to ship Alpha-2 sample this year. Further, low-volume QSE-5 prototype (first commercial product) production is expected to commence. In 2025, QuantumScape is targeting high-volume production of QSE-5. Clearly, business developments are in the right direction and I expect QS stock to make a strong comeback from oversold levels.
Ford (F)
Among the traditional automakers, Ford (NYSE:F) stock is worth considering. There are two important reasons to be bullish on F stock. First, the stock trades at a forward price-earnings ratio of 6.7 and offers a dividend yield of 4.82%. Clearly, F stock is trading at a deep valuation gap and considering the fundamentals, a breakout on the upside is imminent.
Further, Ford is making a gradual transformation towards EVs and the next few years are likely to be exciting. For the current year, Ford is focusing on the truck and cargo van markets. Besides cargo vans, the line-up includes the F-150 and Mustang. These are the most iconic Ford vehicles and can potentially support healthy growth in the EV business.
It’s also being speculated that Ford might be planning a $25,000 compact electric car that will be launched in 2026. If this news holds true, the low-price model can trigger strong growth in vehicle deliveries.
Overall, Ford has high financial flexibility to make big investments. I expect multibagger returns from current levels if the portfolio shift delivers the desired results.
Standard Lithium (SLI)
I will end the discussion with a penny lithium stock that can potentially deliver 10x or 20x returns in the next five years. Standard Lithium (NYSE:SLI) stock has plunged by 63% in the last 12 months. The decline has been on the back of a sharp correction in lithium prices.
However, the correction does not change the fact that Standard Lithium owns quality assets. It’s worth noting that the Company currently commands a market valuation of $207 million. In comparison, the key asset (South West Arkansas) of the Company has an after-tax net present value of $4.5 billion. If other assets are included, the after-tax NPV is likely to be in the range of $5 to $5.5 billion.
The first catalyst for a strong reversal in SLI stock is recovery in lithium prices. That’s seems likely in the next 12 to 18 months with some analysts expecting lithium shortage as soon as 2025. This makes it one of those EV stocks to buy.
The second catalyst is securing financing for construction of South West Arkansas project. The asset required a capital outlay of $1.28 billion. Once financing agreements are in place, I expect SLI stock to skyrocket.
On the date of publication, Faisal Humayun 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.
