With automakers scaling back or delaying their electric vehicle plans, a recent article indicated that the “EV Euphoria is Dead.” There is no doubt that the sector faces macroeconomic challenges coupled with intense competition.
However, it’s too early to assume that it’s the end of the road for EVs. In my view, the industry will see consolidation and some EV companies will fail. The survivors will be stronger than before and continue to create value. With pessimism related to EVs, I believe it’s a good time to buy EV stocks poised for return and massive value creation.
An important point to note is that government policies globally remain supportive towards EV adoption. It’s expected that EVs will represent more than 60% of vehicles sold globally by 2030. Even if we considering a bear-case scenario of 50% vehicles sold to be EVs by 2030, there is significant headroom for growth.
Let’s therefore talk about three EV stocks poised for return and value creation
Tesla (TSLA)
Tesla (NASDAQ:TSLA) stock has witnessed a deep correction of 32% for year-to-date. This does not come as a surprise with the Company missing Q1 delivery estimates. Of course, the sentiments are negative with weak deliveries, macroeconomic headwinds, and competition. I would however consider gradual accumulation in TSLA stock.
In the foreseeable future, potential rate cut is a positive catalyst as it’s likely to support global growth. Further, Tesla has an attractive model line-up. In the next 24 to 36 months, deliveries of Cybertruck, Roadster, and Tesla Semi can support growth.
In the long term, I believe that low-cost EVs can be a game-changer for Tesla. In March 2023, the Company indicated that its working to cut EV production cost to half. If reports are to be believed, Ford (NYSE:F) is planning a compact EV for $25,000. Affordable EVs might be the next area of growth. I am bullish considering Tesla’s financial flexibility that will allow aggressive investments in emerging markets.
Li Auto (LI)
Among the emerging EV players, Li Auto (NASDAQ:LI) is worth buying and holding until 2030. At a forward price-earnings ratio of 15.8, the high-growth stock is trading at a significant valuation gap.
It’s worth noting that Li Auto has a current market valuation of $30.7 billion. The valuation seems attractive because Li Auto ended 2023 with a cash buffer of $14.6 billion. Further, the Company reported free cash flow of $2 billion in Q4 2023. With healthy growth, Li Auto is likely to report FCF of $10 billion annually.
I am also of the opinion that the Company has a quality management team. Recently, the management acknowledged that the “operating strategy of Li MEGA was mis-paced.” Further, the Company was putting “excessive emphasis on sales volume and competition.” Li Auto has slowed down to focus on driving operational efficiency.
I must add that a strong cash buffer allows Li to invest in innovation. Further, retail expansion in China remains aggressive. It’s likely that international expansion will come in the next 12 to 24 months. This will be another catalyst for growth.
Panasonic Holdings (PCRFY)
Panasonic Holdings (OTCMKTS:PCRFY) is my top pick from the EV battery space. After being sideways for the last 12 months, PCRFY stock trades at an attractive forward price-earnings ratio of 7.3. Further, the stock offers a dividend yield of 2.38%.
From an industry perspective, the global demand for Li-ion batteries is expected to increase from 700 GWh in 2022 to around 4.7 TWh by 2030. To meet the incremental demand, Panasonic has ambitious growth plans. The Company is targeting to quadruple EV battery capacity to 200GWh by 2031. This will translate into healthy revenue and EBITDA growth.
Besides the ramp-up in capacity, Panasonic is also targeting to increase volumetric energy density of batteries by 25% by 2031. To achieve this, the Company will be purchasing silicon anode material from Nexon. With next-generation battery cells, it’s likely that EBITDA margin will improve in the coming years. Overall, Panasonic is a blue-chip with focus on innovation and is likely to be a massive value creator in the next few years.
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.
