Within the next 1,500 words, I’m going to convince you to buy the dip in the best EV stocks with both hands. And I’m going to start by talking about your favorite cereal.
Ready? OK, here goes nothing.
When you’re rolling down the aisle of your local grocery store and see your favorite cereal — normally priced at $6 a box — on sale for $3.99, what do you do?
Do you just walk by and pretend you didn’t see the sale price? Or are you stuffing your grocery cart with a half-dozen boxes?
Almost all of us fall into the latter camp. It’s an easy choice — more cereal, less money.
And yet, when it comes to investing, very few of us do that. That is, when we come across our favorite stocks whose prices are 50% off their recent highs, most of us don’t buy the dip. We run for the hills.
Why? Loss aversion.
Our Human Nature
As humans, we are psychologically wired to be deathly afraid of losing money. It’s in our nature. With a cereal box, we don’t “lose” money. We spend $5 and eat the cereal. It’s predictable. It’s certain. There’s no chance, and, therefore, there’s no risk.
But with stocks, folks, it’s a different ballgame. We “spend” $5 on a stock, and then the rest is out of our control. The stock may go up or down or stay flat. It’s unpredictable. It’s uncertain. It is full of chance and, therefore, has risk.
Humans shy away from risk. When cereal is on sale, we buy the cereal. When stocks are on sale, we run for the hills.
And that’s why most retail investors aren’t millionaires.
Risk and reward are infinitely intertwined in capital markets. The higher the risk, the higher the reward — and where there’s no risk (like buying cereal), there’s no reward.
To make money in the stock market — to become independently wealthy by investing in just a few stocks — you need to take risks.
You need to buy cereal and stocks when they’re on sale.
And right now, folks, electric car stocks are on sale by more than 50%. It’s time to step up and buy the dip ahead of what our analysis suggests will be a blockbuster year for the industry.
EV Stocks Have Been Punished
EVs have been broadly advertised as the future of the transportation industry. And sales have grown by 70% per year since 2013. But the stocks have been absolutely crushed in 2022.
Based on yesterday’s closing prices, EV startups from Tesla (NASDAQ:TSLA) to Lucid (NASDAQ:LCID) to NIO (NYSE:NIO) and many others have seen their share prices drop anywhere from 40% to 90% over the past few months.
That’s a huge wipeout — and fundamentally, it makes no sense.
Gas prices are soaring right now and are projected to keep soaring for the rest of the year. This puts great economic strain on those who drive gas-powered cars. And it creates the biggest economic incentive yet for those drivers to go electric.
The number of EV models available for purchase by consumers in 2022 is set to grow by a record 38 models — 61% year-over-year — marking an exponential jump in global EV supply.
A lot of those models are going to debut at prices many of us never thought possible for EVs. Indeed, our analysis suggests that the average starting price of new 2022 EV models will be about 20% below the 2021 average sales price.
Not to mention, these EVs are becoming increasingly capable. Driving ranges are consistently north of 300 miles, with some flexing 500-plus miles. And the world is seeing more and more charging stations, too.
In other words, the fundamental drivers are in place for a massive acceleration in EV demand in 2022. Yet, EV stocks have broadly plunged by more than 50% in just a few short months.
Going back to our analogy from earlier, your favorite cereal is on fire sale right now. It’s time to back up the grocery cart, and load up on EV stocks.
Electric Car Concerns Are Dramatically Overstated
To be sure, there are two big headwinds facing the EV industry today. And they are why EV stocks are down.
But both are grossly overstated at the current moment.
First, you have the supply chain. There is concern that, with China going back into partial lockdown mode due to Covid-19 outbreaks, part production for EVs will decelerate again in 2022. After all, China produced about 44% of the world’s EVs over the last decade. And it presently controls about 60% of the battery component manufacturing market.
But China’s current “lockdown” is restricted to a few cities and is set to last no more than a week. Most of the country’s production capacity remains unaffected. Meanwhile, where it is being impacted, companies are successfully re-routing production elsewhere. Foxconn, a big iPhone producer with a plant located in Shenzhen (one of the cities in a lockdown) is shifting work to unaffected plants to maintain a steady production volume.
So the impact of Chinese lockdowns on EV manufacturing capacity is so far — and will likely remain — very small. It’s nothing to worry about in the big picture.
Meanwhile, there are the soaring nickel prices. Surely, you’ve seen the headline recently saying that a nickel is worth more than a dime these days (in terms of material costs). And that’s because nickel prices have essentially doubled this year, thanks to economic sanctions against Russia, one of the largest nickel exporters.
Nickel is a key component in lithium-ion battery cells. It’s the second largest raw input, behind lithium. Therefore, higher nickel prices should translate into higher lithium-ion battery prices and higher EV prices.
But not that much higher.
Nickel’s Overblown Stress on EV Stocks
Sure, an analysis from Morgan Stanley (NYSE:MS) indicates that nickel prices at $100,000 a metric ton would translate into a $1,000 increase in the input cost of an average EV in the U.S. But nickel prices have since settled to around $40,000 a ton, implying a measly $400 increase in EV input costs. That’s basically a drop in the ocean for cars averaging about $60,000 a sale.
At the same time, lithium-ion battery costs have been plunging for years due to economies of scale and technological improvements. This cost-decline curve may be thrown for a temporary and minor loop in 2022. But once nickel prices inevitably normalize in 2023 and after, the secular forces driving lithium-ion battery production costs lower will continue to do so in the long run.
Net net, most experts — including us — believe EVs are still on track to reach sales price parity with gas-powered cars by 2024, even without subsidies or factoring in refueling costs.
Therefore, the best thing you can do today is ignore the supply chain and rising nickel price headwinds, and buy the dip in the best EV stocks.
Buy EV Stocks With Both Hands
Investing is a bit like grocery shopping.
When shopping for groceries, the goal is to find the best foods at the best prices so you can eat well over the next week.
When investing, the goal is to find the best stocks at the best prices so you can live well over the next 10, 20 or 30 years.
They really aren’t too different. Yet, when things are on sale in the grocery store, everyone rushes to buy. And when things are on sale in the stock market, they run for the hills.
Don’t be like everyone else. Be smarter. Be better. Use market panics to your advantage. When everyone else is selling, look for opportunities to buy high-quality stocks at enormous discounts.
You have that opportunity today in electric car stocks.
That’s why, yesterday, in our flagship investment research advisory Innovation Investor, I unveiled an exclusive research report on the EV sector. In that report, I detailed my team’s outlook for the industry in 2022. And more importantly, I outlined six EV stocks that my team and I believe are positioned for huge gains this year.
Because while EVs are a rising tide, this tide won’t lift all boats…
Some boats will sink. Others will rise very quickly. And this year, in the face of rising gas prices and soaring inflation, the stocks that win biggest will be the ones that can offer consumers the most affordable EVs.
Those unique EV stocks will absolutely soar this year.
Find out their names and gain access to this brand-new exclusive report. And I’ll even tell you all about a $3 “wonder” stock at the epicenter of this whole revolution.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article