The electric vehicle (EV) market is still amidst a general slump, particularly in the U.S. and Europe, where interest rates have remained elevated. This could all change very soon, and investors should be ready.
The U.S. Bureau of Labor Statistics released the consumer price index (CPI) report for the month of May on Thursday of last week. The figures were surprising. The “core” index, which excludes volatile food and energy prices, rose only 0.2% from April, while the year-over-year (YOY) measure climbed 3.4%, its lowest in more than 3 years, according to Bloomberg.
This is positive data for U.S. equities broadly because the Federal Reserve will have more breathing room to cut rates. But within the report, there are some silver linings for the EV industry, in particular. The prices for new automotives declined in May as well the cost for car insurance, which had reached all-time highs in previous periods.
Cooling inflation for new vehicles will ultimately help to create a better demand environment for new EVs, which will help lift the values of various EV stocks. Wall Street has a few favorites that it has been betting on, such as these three.
BYD (BYDDY)
BYD (OTCMKTS:BYDDY) was a prolific lithium battery manufacturer that has recently converted to an EV behemoth, defying all odds. The latter half of 2023 and the beginning of this year were studded with news about the eminent “EV slump” that would harm all manufacturers in the space as consumer demand continued to ebb. Tesla’s Chief Executive Officer (CEO) Elon Musk also warned of slow growth in 2024. Yet Chinese EVs, including BYD, are reporting the opposite.
In the first quarter of 2024, BYD sales jumped 46% YOY to 301,631 new energy vehicles (NEVs). In China, BYD’s home market, the EV maker’s market share sat at around 32.9%. Robust YOY growth numbers broadly continued for the EV maker during the months of April and May. April saw BYD sell 313,245 NEVs, representing an increase of 48.9% from April 2023. Similarly, in May, BYD sold 331,817 NEVs, up 38.1% from the same month in the prior year.
Further, BYD’s ongoing growth rates will depend largely upon demand capacity in China as well as the EV maker’s success in emerging markets. The company has already a good foothold in Brazil and Thailand and plans for a debut in the Middle East as well as certain European nations.
Thus, BYD has garnered strong buy ratings from six Wall Street firms. And the overwhelming majority of the other 24 firms covering the stock have given it a buy rating.
Li Auto (LI)
Li Auto (NASDAQ:LI) is another Chinese EV that has defied sales odds in quarters as many of its American counterparts have continued to report a slowdown of sales and deliveries. In the first quarter, vehicle revenue increased 32.3% YOY to $3.4 billion. Moreover, the firm’s delivery figure climbed 52.9% to 80,000 at the end of the first quarter.
Although these growth figures are impressive, they do come at a cost. Li Auto and just about every other EV maker has engaged in an array of price cuts to entice consumers in the highly competitive market. That is to say, while top-line numbers remain robust, if you glance further down on the income statement, margins will look like they’re compressing. For many EV makers, they are.
Still, the growth of Li Auto is impressive, and Wall Street seems to be optimistic. Out of the 27 firms covering LI, 25 have given the stock either a strong buy or buy rating. In particular, eight have given LI shares a strong buy rating.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) is another EV stock that still has its fans on Wall Street despite ongoing turmoil hitting the EV maker’s growth figures. The American EV maker reported its first YOY decline in quarterly deliveries since 2020 at the end of this year’s first quarter. Tesla’s delivery figures came below many of the estimates of Wall Street estimates. The latter hadn’t predicted the firm’s delivery numbers were going to be hit as badly they were.
The American EV maker is highly dependent on the American car market as well as that of China’s. The U.S. market has performed dismally, unless you’re Rivian (NASDAQ:RIVN). Inflation, which has affected the price of new vehicles and car insurance, has kept consumers out of the burgeoning market.
A possible Fed Rate cut could definitely pull TSLA out of the doldrums. The EV maker’s share price has plummeted 24.6%year-t0-date (YTD). However, not every Wall Street firm or analyst is feeling that pessimistic. Tesla has garnered six strong buy ratings from analysts as well as 11 buy ratings, though a majority of analysts are rating the stock a hold.
On the date of publication, Tyrik Torres 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.
