A technological revolution is taking place right out in the open, though most people have yet to partake in it.
On practically any city street you travel along these days, you’ll spot one of the latest examples of transportation’s shift to an electrified power source.
It’s a dazzling future that has already arrived for some, and it is growing more and more evenly distributed with each passing day.
Whether the latest model has been built by Tesla or Jaguar or Audi or BMD or Volvo or Volkswagen or Ford or Nissan or Kia or Chevrolet or Hyundai… one thing is certain — the electric vehicle (EV) revolution has finally reached a tipping point.
The industry has come a long way since the Scottish inventor Robert Anderson built an electric carriage in the 1830s powered by non-rechargeable primary power cells.
Author Malcolm Gladwell describes such a situation in his book, The Tipping Point: How Little Things Can Make a Big Difference, as “…that magic moment when an idea, trend, or social behavior crosses a threshold, tips, and spreads like wildfire.”
Consider this: One week after President Joe Biden took a test drive of Ford’s first-ever all-electric F-150 truck at the company’s facilities in Dearborn, Michigan, in May 2021, the company received 70,000 preorders for the new vehicle, called the F-150 Lightning.
If those orders are all filled, they would amount to about a quarter of the total number of EVs sold in the U.S. in 2020. Ford’s electric truck is not a stunt vehicle, or a luxury car with a six-figure price tag.
A huge part of the appeal is that the F-150 is a salt of the earth working truck — some 8% of the U.S. workforce drives an F-series truck on a daily basis, while Ford trucks and vans make up about 40% of the country’s commercial vehicles.
Aside from its transport capabilities, the F-150 Lightning can also be used like a generator, allowing users to plug in power tools across 11 outlets. It can even serve as a backup generator in an emergency, providing power to your home or office for days in the case of an outage. That’s a very handy resource to have in an era of extreme weather events, like hurricanes on the East Coast or wildfires out West or the big freeze that hit Texas in February 2021, causing widespread power outages.
However you look at it, electrifying a work horse of modern transportation at a reasonable price and giving it even more practical functionality is a massive step toward mainstream adoption.
And that huge shift, from combustible engines to electric motors, is setting up a once-in-a-lifetime investment opportunity.
Analysts with Allied Market Research expect the value of the global EV market will increase from $162.3 billion in 2019 to $802.8 billion by 2027, increasing at a rate of about 22.6% per year over the timeframe.
That estimate could be very conservative. A Wedbush analyst recently said he expected the EV market could worth as much as $5 trillion over the next decade.
The bottom line: There’s a lot of growth potential in this space. So, there’s also a lot of EV opportunities for investors. So, I’d like to share eight stocks that offer solid upside in this space. But first, let me give you the lay of the land of the EV market and explain why you’re not too late to this party.
The Impressive Setup Behind EVs
As with so many industries struggling to right itself in the wake of the pandemic, the overall automobile market had a difficult year in 2020.
During the first half of the year, car registrations fell by about a third from 2019. Registrations picked up in the second half of the year, but still dropped 16% year-over-year.
Yet there was one significant bright spot in the troubled 2020 car market — EVs.
In fact, the global portion of EV sales increased 70% to a new record 4.6% of the overall market. That amounted to roughly three million new electric car registrations in 2020. Europe saw the biggest increase, with 1.4 million new EV registrations. China was a close second with 1.2 million, while the U.S. registered 295,000 new EVs.
The fact is that EVs are getting cheaper, and fast approaching the overall cost of ownership at which they’ll compete on a dollar-for-dollar basis with combustible engine vehicles.
A big factor in reducing costs has been cheaper battery power. Ten years ago, a kilowatt hour of battery power cost about $1,000. Today, the cost is approaching $100 per kilowatt hour — or about the price point where experts say EVs start to cost less to buy than their combustible engine competitors.
EVs also have the advantage that maintenance and fuel costs are much cheaper than gas- or diesel-powered vehicles. Consumer Reports found those who purchase EVs can expect to save about $4,600 in repairs and maintenance costs over the lifetime of the vehicle.
In the meantime, governments large and small continue rolling out incentives to purchase EVs as they strive to meet local, regional and international climate goals.
Total government spending throughout the world to incentivize direct purchases, as well as tax deductions, totaled $14 billion in 2020, or about 25% higher than it was in 2019. The increase in government spending was concentrated in Europe, where several countries encouraged residents to spend on EVs as one means to bolster the impact of the economic downturn caused by the pandemic.
And car makers are following suit. Jaguar says it will sell only electric cars starting in 2025, and Volvo said it would do so by 2030. General Motors will go electric only by 2035, Ford plans on selling only electric vehicles in Europe by 2030 and Volkswagen has plans to derive 70% of its sales from EVs by 2030.
These carmakers are also upping their rollout of new EV models, expanding the range of options for consumers. In 2020, automakers sold 370 different models of EVs, a 40% increase from the year prior, with China offering the largest menu of options. In Europe, automobile manufacturers more than doubled the choice of EV models for sale.
Overall, 55% of new EV models introduced onto the market in 2020 were SUVs and pickup trucks, in part because SUVs and pickups are the fastest growing automobile segment in China and Europe. SUVs, in particular, are typically more profitable than smaller cars. SUVs and pickups also contribute more to air pollution than other models, so electrifying them can help reduce CO2 emissions faster.
It’s little wonder that 18 of the world’s 20 largest automobile manufacturers said they plan on increasing their EV offerings this decade. And many are setting up new production lines that will only produce EVs, including Volvo, Ford, Volkswagen and Stellantis.
Most EVs are charged at home or work, but public charging stations will be a key factor in making EVs more user-friendly. In 2020, there were 1.3 million public charging stations in the U.S., which was 45% more than in 2019. As fast as that pace was, it was a fraction of the 85% growth in charging stations the year prior. The pandemic certainly weighed on new installations in 2020.
The rates of both slow and fast public charging stations have also been rising by double digits in China and Europe.
As you can see, the industry is fast approaching its lift-off phase, when the potential for growth and adoption reaches exponential proportions. And the timing couldn’t be better for the eight stocks I believe have the growth potential to take full advantage of the EV trend. These companies are also grounded by the superior sales and earnings I need to see before I recommend any stock. Let’s take a closer look.
Alpha & Omega Semiconductor
Alpha & Omega Semiconductor (AOSL) develops semiconductor products that meet the complex power demands of advanced electronics. The company provides power discrete products—MOSFETs, SRFETs, XSFETs—that are used primarily in high-volume applications, including desktop computers, laptops, servers, smart phone chargers, flat panel televisions, LED lights, smart phones, battery packs, gaming consoles and even e-vehicles.
Third-quarter earnings surged 600% year-over-year to $0.77 per share, up from $0.11 per share in the same quarter a year ago. Third-quarter revenue jumped 58.3% year-over-year to $169.2 million, compared to $106.9 million in the third quarter of 2020.
The analyst community was expecting earnings of $0.55 per share on $157.07 million in revenue. So, AOSL topped earnings estimates by 40% and revenue forecasts by 7.7%.
Given the strong third-quarter results, AOSL now expects fourth-quarter revenue of about $170 million. That’s up from revenue of $122.39 million in the fourth quarter of 2020 and nicely higher than analysts’ current estimates for $162.9 million.
Daqo New Energy Corporation
Founded in 2008, Daqo New Energy Corporation (DQ) is a manufacturer of high-purity polysilicon and solar wafers in China. The company is one of the lowest cost producers of high-purity silicon in the world. So, it’s not too surprising that Daqo New Energy’s polysilicon and solar wafers are in top demand with the solar PV industry, which utilize the products to develop solar power solutions.
Given the worldwide boom for solar power and strong demand, Daqo New Energy has achieved stunning earnings. First-quarter revenue soared 51.7% year-over-year to $256.1 million, missing estimates for $297.97 million. Earnings surged 150.6% year-over-year to $83.2 million, compared to $33.2 million in the first quarter of 2020.
Daqo New Energy also reported first-quarter earnings of $1.13 per ADS, up 140.4% from the $0.47 per ADS reported in the first quarter of 2020. The consensus estimate called for earnings of $1.19 per ADS, so Daqo New Energy posted a 5% earnings miss.
Enphase Energy, Inc.
Within five years of the company’s founding, Enphase Energy, Inc. (ENPH) had developed and introduced the first microinverter system. Simply put, microinverters sit underneath solar panels and convert all the sunshine to actual electricity for homes and businesses. So, they’re vital to the solar energy industry.
By September 2011, Enphase Energy had shipped one million microinverters. Today, Enphase Energy operates in 21 countries around the world, has more than 300 issued patents and has shipped more than 23 million microinverters globally. The company now has more than 6.5 gigawatts DC of Enphase-based systems installed in 130 countries.
Enphase Energy is benefiting immensely from California’s solar mandate and the booming solar industry as a whole, which was evident in the company’s recent earnings report.
For the first quarter, Enphase Energy also achieved revenue of $301.8 million and earnings of $78.7 million, or $0.56 per share. That translates to 46.8% year-over-year revenue growth and 47.4% year-over-year earnings growth. The consensus estimate called for earnings of $0.45 per share on $292.23 million in revenue, so ENPH posted a 24.4% earnings surprise and a 3.3% revenue surprise.
Looking forward to the second quarter, Enphase Energy expects revenue between $300 million and $320 million, which is up from $125.54 million in the second quarter of 2020. This guidance is slightly lower than analysts’ current expectations for $320.92 million, which is why the stock sold off this afternoon. However, this was a stunning earnings report and ENPH’s second-quarter guidance represents between 139% and 155% year-over-year earnings growth.
Nio, Inc.
Nio, Inc. (NIO) boasts that it is the “next-generation car company,” as it designs and manufactures electric vehicles that utilize the latest technologies in connectivity, autonomous driving and artificial intelligence. The company currently offers an electric seven-seater SUV (ES8) and a five-seater electric SUV (ES6), and recently introduced an attractive electric sedan (ET7). Its vehicles utilize NOMI, an in-vehicle artificial intelligence assistant.
Recently, NIO announced that it was partnering with NVIDIA Corporation (NVDA). NIO plans to use the NVIDIA DRIVE Orin system-on-a-chip for its electric vehicles that will provide autonomous driving capabilities. The NVIDIA DRIVE Orin-powered supercomputer, which is being called Adam, will be launched in the ET7 sedan in China in 2022. Announcements like this are very positive, so NIO has been stealing some of Tesla’s thunder.
Now, it’s important to note that NIO was bailed out by the Chinese government. Last year, the Chinese government injected $1 billion and now has a 24% ownership in the company. The reality is that China wants to dominate at least five major industries by 2025, and NIO is now its ticket to dominate EV manufacturing. With the backing of the Chinese government, some Wall Street firms are eager to help NIO by issuing new debt or equity. So, I wouldn’t be surprised if NIO surpasses Tesla, which is currently number-two in China, for market share in the upcoming years.
In fact, the company revealed that it shipped 4,516 of its ES8s, 8,088 of its ES6s and 7,456 of its EC6s during the first quarter of fiscal year 2021. That represented a total of 20,060 vehicles, or a 422.7% year-over-year increase.
Total first-quarter vehicle sales surged 489.8% year-over-year to RMB7,405.8 million, or $1.13 billion in U.S. dollar terms. Total first-quarter revenue also jumped 481.8% year-over-year to RMB7,982.3 million. In U.S. dollar terms, NIO achieved total revenue of $1.22 billion, which beat estimates for $1.02 billion.
NIO also reported an adjusted first-quarter earnings loss of $0.04 per share, which was up from an earnings per share loss of $0.25 in the same quarter a year ago. Analysts were expecting an earnings per share loss of $0.16, so NIO posted a 300% earnings surprise.
Looking forward to the second quarter, NIO expects to deliver between 21,000 and 22,000 vehicles or a 103% to 113% year-over-year increase. Total revenue is forecast to be between $1.24 billion and $1.30 billion, or 119% to 128.7% year-over-year revenue growth.
NIU Technologies
NIU Technologies (NIU) was founded in 2014 to develop smart electric scooters. The company’s current portfolio includes seven series of smart e-scooters, including Gova, MQi, NIU Aero, NQi, RQi and TQi. Niu Technologies also designed a 4th generation NIU Energy lithium battery that is light-weight for two-wheel vehicles and provides longer range and battery life.
So far, NIU Technologies has sold more than one million smart e-scooters around the world. The company has more than 1,050 stores in 181 Chinese cities. It also operates in 38 countries, with more than 25 distributors.
The growing worldwide demand for electric scooters and bicycles is exploding, as they are viewed as a replacement for a car in many urban areas. And this rising demand has added handsomely to NIU Technologies’ top and bottom lines.
NVIDIA Corporation
NVIDIA Corporation (NVDA) is a major player in the computer hardware arena. It is a leading computer graphics company, making graphic processing units (GPUs) for consumers and businesses. It has over 7,000 patents relating to computer graphics, the largest portfolio of its kind.
The company has been in the computer graphics business for more than two decades – it invented the GPU in 1999 – so it is a well-established player. Since 2014, the company has shifted its focus to five major markets – gaming, professional visualization, data centers, auto and artificial intelligence.
NVIDIA has experienced explosive growth over the years. In fact, the most-recent quarter was another one for the record books. Company management commented, “We had a fantastic quarter, with strong demand for our products driving record revenue.”
First-quarter revenue soared 84% year-over-year to $5.66 billion, which topped analysts’ estimates for total first-quarter revenue of $5.41 billion. Gaming revenue accounted for $2.76 billion, or a 106% year-over-year increase, and data center revenue accounted for $2.05 billion, or a 79% year-over-year rise.
First-quarter earnings surged 103% year-over-year to $3.66 per share, up from $1.80 per share in the same quarter a year ago. The analyst community was anticipating first-quarter earnings of $3.28 per share, so NVIDIA posted an 11.6% earnings surprise.
NVIDIA also noted that it paid $99 million to shareholders in the form of dividends during the first quarter. The company will pay another quarterly dividend of $0.16 per share on July 1. All shareholders of record on June 10 will receive the dividend.
Looking forward to the second quarter, NVIDIA expects revenue of $6.3 billion, which is up from $3.87 billion in the second quarter of fiscal year 2021.
Quanta Services, Inc.
Quanta Services, Inc. (PWR) offers specialty contractor services through its vast network of companies in North America and Australia. The company primarily provides infrastructure solutions for electric power, wireless and fiber optic installation, underground utilities and pipelines. Simply put, Quanta Services provides “the infrastructure that powers your world.”
As a result, Quanta Services is well-positioned to benefit from the shift to 5G. Company management even recently noted, “Spending by utilities on grid modernization, system hardening and renewable generation integration and spending by communications providers on broadband and 5G network deployment are driving strong demand for our services, as evidenced by our record backlog of $15.8 billion.”
For the first quarter, Quanta Services achieved adjusted earnings of $0.83 per share on $2.7 billion in revenue. That compared to adjusted earnings of $0.47 per share and revenue of $2.76 billion in the first quarter of 2020. The consensus estimate called for adjusted earnings of $0.73 per share, so Quanta Services posted a 13.7% earnings surprise.
With a “solid start” to the year, Quanta Services increased its outlook for fiscal year 2021. Full-year revenue is forecast to be between $12.05 billion and $12.35 billion and adjusted earnings per share are expected to between $4.12 and $4.57. In comparison, Quanta services reported adjusted earnings of $3.82 per share and revenue of $11.2 billion in fiscal year 2020.
Taiwan Semiconductor Manufacturing Company Limited
Taiwan Semiconductor Manufacturing Company Limited (TSM) was the first dedicated semiconductor foundry in the world when it was founded in 1987. In other words, TSM does not develop or market any semiconductor products under its own brand. So, the company is never in direct competition with its customers. Today, Taiwan Semiconductor is the largest semiconductor foundry in the world, with a 56% market share.
Taiwan Semiconductor manufactures more than 10,760 products that use 272 unique technologies for its nearly 500 customers. The company manufactures semiconductors that are used for computers, consumer, industrial, communications and standard markets. In 2019, Taiwan Semiconductor’s total managed capacity reached more than 12 million 12-inch equivalent wafers.
For the first quarter, TSM achieved earnings of NT$139.7 billion and revenue of NT$362.4 billion, which represents 19% year-over-year earnings growth and 17% year-over-year revenue growth.
In U.S. dollar terms, first-quarter earnings were $4.93 billion, and revenue was $12.92 billion. First-quarter earnings per ADR jumped 28% year-over-year to $0.96. The consensus estimate called for earnings of $0.95 per ADR and revenue of $12.86 billion, so TSM posted a 1.05% earnings surprise and a slight revenue surprise.
The company noted that the global shortage could ease a bit in the third quarter, but TSM expects overall demand to remain high and the shortage to persist into 2022. As a result, TSM boosted its spending targets to $30 billion to expand manufacturing capacity and upgrades for this year.
Looking ahead to the second quarter, TSM expects total revenue between $12.9 billion and $13.2 billion. That represents 24.3% to 27.2% year-over-year revenue growth—and the forecast is in line with analysts’ current estimates for $13.15 billion.
