Despite the recent stock market chaos, I remain exceptionally bullish on the future of electric vehicle stocks. I believe long-term investors have a very compelling opportunity to buy what will be some of the market’s biggest winners over the next decade. And they get to do so at generationally low prices.
The prices on EV stocks have fallen. The fundamentals have not — they’ve only strengthened.
As gas prices have soared to multi-decade highs, consumer interest in electric vehicles has soared in 2022. That interest has translated into robust sales growth. Electric vehicle sales are tracking to be up more than 50% this year.
The growth won’t stop there. Gas prices remain stubbornly high. And thanks to geopolitical tension, they’ll likely remain higher for longer. And the inflationary pressures that pushed up EV prices in 2022 — namely, production bottlenecks and battery metal prices — are subsiding.
Over the past two weeks alone, three EV startups that had formerly done nothing but cut production guidance due to those bottlenecks — Rivian (RIVN), Lucid (LCID), and Polestar (PSNYW) — all reaffirmed previously issued production guidance for 2022. Further, all sounded very optimistic about a 2023 manufacturing ramp. Indeed, EV production bottlenecks are a thing of the past.
Meanwhile, pretty much every battery metal price has collapsed over the past few months. Lithium prices remain high but are still off their 2022 peak. Cobalt, nickel, and copper prices have dropped more than 30%. Manganese prices are down more than 60%. And aluminum prices have fallen about 40%.
EV battery metal prices are crashing — yet oil is still stuck at $90 per barrel. The total cost of ownership delta between electric vehicles and gas-powered cars is about to narrow dramatically in 2023. As it does, the EV industry will grow at its fastest rate yet.
Ahead of that enormous growth, and thanks to temporary macroeconomic fears, EV stocks have been crushed, creating a golden buying opportunity for these high-growth winners.
The EV Revolution is in full swing, with more and more people making the switch to electric cars every day. The impetus for this acceleration in EV adoption is quite simple: Gas prices have become untenable in 2022, while electric car prices are plummeting.
This perfect storm is making electric cars a far more affordable option than gas-powered cars, and as a result, the EV market is booming. In 2023 and beyond, we can expect to see even more people making the switch to electric cars, as they become an increasingly attractive option compared to gas-powered cars.
Have you been to a gas station recently? While prices have stabilized somewhat, the sky-high gas prices? Across America this summer, the average price of a gallon of gasoline jumped to an all-time high of more than $4 as the Russia-Ukraine war squeezed fossil fuel markets.
Now, while you might be balking at those ridiculously high costs — and hurting from them — you can actually make money off today’s gas prices… by buying electric vehicle (EV) stocks.
Specifically, there are 12 EV stocks to buy in 2023, as they’ll benefit from rising gas prices in a huge way.
But, first, let’s understand why we think EV stocks — despite their recent pain — could win big in the new year.
Rising Gas Prices Help EV Adoption
Soaring gas costs have a history of promoting healthy EV adoption.
And it checks out, right? The more money you’re shelling out at the pump every time you refuel, the more time you spend thinking: “Man, maybe I should get an electric vehicle.” And the more often you have that thought, the more likely you are to finally make the switch to an EV.
Makes total sense. But the quantitative correlation here is way stronger than you may think.
Throughout 2017 and 2018, U.S. gas prices rose modestly, and global EV unit sales grew about 60% in each of those years. Then, in 2019, retail gas prices started to drop, coinciding with a major slowdown in EV sales growth to just ~10%. Gas prices stayed low and bounced around throughout 2020, coinciding with a ~40% rise in EV sales. And then as prices jumped in 2021, EV sales did, too — by a record 93%.
The correlation here is clear and strong. The higher gas prices go, the more consumers buy EVs instead of gas-powered cars.
Well, in 2022, gas prices are soaring to record highs and likely won’t come down anytime soon. Why? Because the U.S. just officially banned all Russian energy imports.
History shows this should lead to a surge in EV sales in 2022. And that’s exactly what will happen.
So Many More EV Options in 2023
Gas prices will be just one of many factors that will spark enormous growth in EV stocks in 2022.
Another arguably more important factor is the increase in EV options this year.
If you were looking to buy an EV in 2021 or 2022, you didn’t have too many options. There was Tesla (TSLA), Toyota (TM) Prius, maybe a few other choices. But by and large, your selection was limited.
In 2023, that selection is going to expand like never before.
Ford is launching its electric F-150 pick-up truck. Mercedes-Benz plans to introduce three new EV models. BMW is coming to market with two new EVs. Cadillac is launching the electric Lyric. Nissan has the Ariya. Toyota has the bZ4x, and Subaru has the Solterra. Volvo plans to release two new electric models. Volkswagen is out there with the ID.4. Lexus plans to debut the Lexus RZ. Kia has the EV6 coming to market, and Hyundai is launching two new Ioniq models.
And then there are all the “new” car brands. Lucid is rolling out its cars. Rivian is releasing its trucks. Canoo (GOEV) is launching its Lifestyle Vans. Fisker (FSR) plans to deliver its Ocean SUV, and Polestar has plans to launch soon as well.
You get the point.
The number of EV models available for purchase by consumers is going to dramatically increase in 2023. In fact, this will be an exponential jump. Over the past five years, the number of new EVs introduced into the U.S. market has numbered around five to 10 models per year. In 2022, that number is expected to jump to 38, marking an exponential 61% year-over-year jump in total EV models available in the U.S.
More options will likely lead to more buyers… especially since those options are largely coming from legacy automakers with strong brand equity and a lengthy list of previous buyers.
Oh, and let’s not forget many of these models will be cheaper than anything the EV industry has seen before.
EV Prices Will Plummet in 2023
One of the biggest hurdles to buying an EV has been their price point. They are, quite simply, awfully expensive. In January 2021, the average transaction price of a new EV was about $63,000. That compares to the average transaction price for all new cars of just $46,000, per data from Kelley Blue Book.
However, EV prices are set to plummet next year because of those 38 new models coming to market. As many are debuting at never-before-seen, ultra-low prices.
Canoo is starting its Lifestyle Van around $35,000. Fisker is releasing the Ocean SUV at just $37,500. Hyundai’s Ioniq models will start around $43,000. The Ford F-1 Lightning pick-up truck will start at $40,000. Kia’s EV6 be $41,000, while the Nissan Ariya will start at $47,000 and the Subaru Solterra at $40,000. The Toyota bZ4x, meanwhile, will likely start at $36,000.
Those are ultra-low prices. We’ve never seen costs that low on such a wide variety of high-quality EVs.
Indeed, per our rough analysis of the projected and announced starting prices of new EV models in 2022, we believe the average price of EVs could fall by about 20% this year!
So not only are gas prices soaring, but a bunch of new EV models are launching this year concurrent to that gas price spike. And the bulk of those models are debuting at ultra-low, never-before-seen prices.
It doesn’t take a rocket scientist to connect these dots.
The EV Revolution is about to kick into overdrive in 2023, and certain EV stocks are going to absolutely soar!
Shifting Macro Environment
Multiple game-changing trends have converged to set the stage for the nascent EV market to race toward global ubiquity over the next decade.
- Demand is shifting. Today’s consumers are more aware than ever before of climate change. And they’re increasingly aligning their purchasing decisions to “go green.” According to a recent national survey from Consumer Reports, 71% of Americans have the desire to drive an EV. And that number is going up every single year.
- Laws are changing. Governments are also more aware than ever before of climate change and are increasingly enacting legislature to promote adoption of “green” technologies. More than 200 cities and counties across the world have a “100% clean energy” target for 2030, 2040, or 2050 — while districts on the cutting edge of green tech (like California and New Jersey) are outright banning gas car sales after 2035. Not to mention the recently passed Inflation Reduction Act, which is allocating nearly $400 billion to climate-friendly tech development.
- Tech is improving. EVs used to be significantly limited by driving range. Thanks to major technological improvements on the battery front, that’s no longer true. The average range of an EV has increased 140% since 2011, with a fully-charged EV now getting as much range as a gas car at 300-plus miles (and some even fetching over 500 miles of range). Even further, gas cars aren’t increasing their driving ranges. But EVs are — and rapidly. So, by 2030, EVs will be able to drive significantly farther than gas cars.
- Costs are falling. EVs also used to be significantly limited by costs. That is, they have traditionally been far more expensive than gas cars. Again, though, this is no longer the case. Average EV prices have dropped 70% since 2010, now largely on par with gas cars. Economies of scale and technological improvements will unlock further cost reductions. And by 2030, EVs will be substantially cheaper than gas cars.
- Supply is pivoting. For years, auto industry incumbents were asleep at the wheel when it came to the EV revolution. But that’s not the case anymore. Every major automaker in the world — from Ford (F) to General Motors (GM) to Bentley — is making an all-out blitz into the EV category. And it will amount to an unprecedented surge in EV supply over the next decade.
The future couldn’t be any clearer.
EVs are fundamentally disrupting the entire multi-trillion-dollar auto market.
It’s one of the biggest disruptions we have ever seen in the past 50 years — and by extension, it’s one of the biggest investment opportunities we have seen in the past 50 years, too.
The right investments in the EV sector will score investors 10X, 20X, even 30X returns over the next few years.
Note the emphasis above…
The right investments.
That’s the thing about disruptive megatrends. You can’t just invest in the trend itself. Although the internet did become a globally ubiquitous, multi-trillion-dollar industry, most internet startups in the 1990s went under. Only a handful actually turned into enormous long-term winners.
The same will be true for the EV industry.
By 2030, it will become a globally ubiquitous, multi-trillion-dollar industry. But there are a lot of EV startups today, and the reality is that most will fail.
Only a handful will succeed — but those that do will generate Amazon-like returns.
So, with that in mind, let’s take a look at my 12 favorite electric vehicle stocks to buy for the next decade. Each represents a right investment in one of the biggest disruptions of our lifetimes.
EV Stock #1: The Emerging ‘Tesla of China’
There’s no doubt that Tesla (TSLA) has experienced momentous success in the booming EV market.
But, with a $460 billion market cap, it’s fair to say that Tesla is already valued to be a dominant auto maker for many years to come.
In other words, if you’re looking for explosive gains in the EV market, it may be time to look for the next Tesla…
With that in mind, I’d like to introduce you to NIO (NIO).
Many consider NIO to be the “Tesla of China.” That’s accurate. NIO is dominating China’s luxury EV market today much like Tesla has dominated America’s luxury EV market over the past few years.
This dominance isn’t by mistake.
NIO makes the best electric cars in China, packaged with the most exclusive and desirable branding in the market. And thanks to a unique business model, it can sell those cars at great prices.
There’s no denying the robust performance and aesthetic of NIO’s e-SUVs. These are sleek looking, smartly designed luxury cars with tons of space, attractive interiors, omni-present software integration, and a large sky roof that gives the cars a modern, open-air feel.
NIO’s cars are only rivaled by Tesla in terms of range (350-plus miles of driving range, significantly better than every other EV in the world except for Tesla’s long-range models, which are comparable) and pick-up power (0-to-60 miles per hour time of 4.5 seconds, again miles better than every other EV in the world except for Tesla’s models, which are comparable).
So, when it comes to EVs, NIO and Tesla make the best cars in the world, without any close competition.
Meanwhile, NIO has followed in Tesla’s stateside-footsteps, fostering excellent, exclusive brand equity in China, primarily through the creation of swanky NIO clubhouses for car-owners. In so doing, NIO has cemented itself as the “cool” brand in China’s EV market.
Perhaps most importantly, thanks to its unique battery-swapping model that removes the cost of battery ownership for the consumer, NIO is selling its premium EVs for anywhere between $50,000 and $80,000. That’s a great price for a high-performance luxury e-SUV like this. For comparison, Tesla’s Model X is selling for over $100,000 in China.
It doesn’t take a rocket scientist to connect these dots.
By selling the best premium e-SUVs in the market, under a great brand, and at great prices, NIO will drive to a leadership position in China’s premium EV market over the next decade — which, of course, is great news for NIO stock, because China is the largest auto market in the world.
But NIO also has an incredible opportunity to leverage its leading tech, strong brand, and genius business model to replicate its core China success on a global scale.
Ultimately, that means NIO is a Tesla 2.0 in the making.
Tesla is a $575 billion and “getting-bigger-everyday” company. NIO’s market cap is $17 billion. Clearly, there’s a ton of upside potential left in this emerging EV maker.
EV Stock #2: The European Leader in EV Charging
We’re getting pretty bullish on electric vehicle stocks at the moment and, but more specifically, we’re bullish on EV charging stocks. The news flow is just incredibly positive.
Earlier this summer, General Motors partnered with EV charging network operator EVgo (EVGO) to build 2,000 EV chargers at 500 Pilot locations across the U.S. Then Los Angeles International Airport commenced the construction of 1,300 EV charging stations across its facilities. Shortly after that, IKEA announced that it will be installing more than 140 EV chargers at over 25 of its U.S. locations.
The U.K. government pledged 20 million pounds to build 1,000 EV chargers across its country, while the U.S. government passed an elephant-sized climate bill that includes nearly $2 billion in incentives for EV charger construction. The Department of Transportation approved more than $900 million in funding for the construction of hundreds of electric vehicle chargers across 35 states. And just last week, California legislators committed an additional $1 billion to building out EV charging infrastructure in the state.
The writing is on the wall. The EV charging industry is on fire right now. We think that means it’s time to buy the dip in beaten-down EV charging stocks.
One such EV charging stock is Europe’s largest EV charging network operator. The company is growing revenues by more than 100% year-over-year, signing huge partnerships with McDonald’s (MCD) and Carrefour as it embarks upon a decade of hypergrowth. Yet, the stock has been crushed in 2022 and is now quite cheap. Time to buy the dip? Perhaps.
We’re talking about Allego (ALLG) — a European public EV charging network operator. The company operates a network of over 28,000 vehicle-agnostic AC, fast, and ultra-fast chargers across more than a dozen European countries. Allego makes revenue through the sale of chargers and the use of electricity during charging sessions.
The company’s growth strategy includes partnering with large corporate customers and helping them build EV charging stations at their physical locations. For example, McDonald’s — the world’s largest restaurant operator — has selected Allego to add EV charging stations to various McDonald’s locations across Europe. Carrefour — France’s largest retailer — has also selected Allego to add EV charging stations to its retail locations.
Allego is mostly a hardware company. However, the company also operates a software — dubbed Alamo — which helps the company select high-usage sites for its EV chargers. It’s also in the business of signing long-term power purchase agreements to clean energy providers to ensure that its EV chargers are mostly sourcing their energy from clean energies.
The company is growing very quickly, reporting revenue growth of 105% last quarter. Revenues are still quite small (projected at ~$150 million this year), but analysts see that number growing to $1 billion within the next five years. Gross margins are about 25%. EBITDA and operating margins are negative but expected to turn sharply positive in the coming years as software sales flow ramps up.
We believe the EV charging industry will grow rapidly over the next few years, especially in Europe, where the continent is facing an urgent energy crisis and countries are choosing to respond by leaning into the Clean Energy Revolution more aggressively. We believe Europe’s adoption of electric vehicles (and consequently, its construction of EV charging stations) will accelerate in 2023 and beyond.
Allego is a market share leader in the European EV charging market with significant competitive advantages through its partnership network. On the demand side, big partnerships with the likes of McDonald’s and Carrefour give the company visibility to construct thousands more EV chargers over the next few years. On the supply side, big PPAs help Allego to secure clean power to fuel its EV charging stations.
The company is very focused on growing its presence in the fast and ultra-fast charging niche of the market, which we see as the higher value-add portion of the market. What’s more, its growth is stunning, and the backlog is huge. The current contracted backlog gives Allego visibility to growing its charging network by more than 7X over the next few years.
Trading at less than 5X 2024 sales estimates, the valuation is quite attractive.
While EV charging stocks have been crushed in 2022, we cannot deny that EV chargers are vital for the future — which increasingly appears to be the future that governments worldwide want to build over the next few years. Today, EV charging stocks are very cheap and beaten-up ahead of what should be many years of robust growth. That combination should power big gains in these stocks going forward.
EV Stock #3: Wall Street’s Newest EV Stock That’s Stealing All the Hype
Next on our list is one of Wall Street’s newest EV stocks, which, while other EV stocks struggled, soared more than 150% in its Wall Street debut. It is one of the most unique and coolest EV startups in the world today, and if the company’s promising technology scales, this stock could be a huge long-term winner.
The company we’re talking about is Sono Group (SEV).
Sono Group is an electric vehicle startup that specializes in the unique category of solar-powered electric vehicles, or SEVs for short.
The company is essentially building a new concept electric vehicle that, instead of being outfitted with aluminum and paint, is covered in flexible solar panels that allow the car to charge itself as it drives, or while it parks, thereby boosting the driving range of the vehicle and reducing the need for charging stations everywhere.
The breakthrough innovation here is in Sono’s solar technology. Traditional solar technology relies on glass to cover the solar cells, but glass is heavy and inflexible — and therefore, cannot be wrapped around the frame of a vehicle.
Sono has developed proprietary polymer technology that is lightweight and allows for flexible surface integration. This unique technology is at the core of what enables Sono to make solar panels that are lightweight enough and flexible enough to be wrapped around a car.
Sono Group is pioneering this breakthrough concept of SEVs through its first car, the Sion. The Sion is an electric sedan which will be outfitted with 248 solar cells, which collectively will add about 70 miles of driving range to the car.
The Sion has received 14,000 reservations corresponding to a net sales volume of $340 million. Sono Group believes that its solar mobility technology can be integrated into more than just passenger cars, and in the future, plans to create SEVs across all transportation verticals.
The company just went public through a hugely successful initial public offering. As I write this, Sono Group is valued at $2.3 billion.
The EV sector is one of the hottest sectors on Wall Street today. It seems any and all pureplay EV stocks are benefitting from a massive investor buying spree. Sono Group’s enormously successful IPO shows that this stock is included in this “rising tide lifts all boats” dynamic. You could easily see this stock turn into the next Lucid or Rivian and start ripping higher in the near-term.
Long-term, the potential in the EV market is massive. We believe the rules of the auto industry will be rewritten over the next decade, and that by 2030, the car titans of old will be replaced by the car titans of new. To that extent, Sono Group is in the right market at the right time.
The concept of SEVs is intriguing. They aim to solve two major issues stagnating adoption of EVs: Range anxiety and charging infrastructure. They solve the latter very well. They solve the former inadequately, as 70 miles of added driving range isn’t that much. However, even with just 70 miles of added driving range, SEVs do have huge value-add applications in sunny parts of suburban and rural America and Europe.
Solar technology is not static. It’s very dynamic. And right now, scientists across the globe are working on multiple solar technology breakthroughs to dramatically improve the performance of solar cells. One such promising breakthrough is the inclusion of perovskites in solar cells. Perovskites are a very flexible material, and therefore, perovskites could be included in Sono Group’s solar mobility tech and significantly improve the performance of these SEVs.
At $2.6 billion, Sono Group is one of the cheaper pure-play EV startups with a multi-thousand-vehicle reservation book.
This is a pre-revenue company, and there remain some enormous execution risks when it comes taking the concept of SEVs, and turning it into a commercial reality.
Without some major technological improvements in the solar mobility tech stack, we believe the Sion will struggle to expand beyond a few niche markets.
Beware the momentum trade here. Momentum is Sono Group’s friend. For now. That could change at any moment.
The Sion retails for about $30,000.
In our opinion, a best-case outcome for the Sion is to replace the Prius. We believe the market for Prius-like vehicles measures around 500,000 vehicles per year (a conservative estimate).
At those volumes, Sono Group would be bringing in $15 billion in sales per year from the Sion alone.
A 2X sales multiple on that implies a potential future valuation of $30 billion.
The EV sector is red-hot today, and for good reason. But the multi-trillion-dollar electric shift in the automotive industry will not lead to just one or two new titans in the auto industry — it will entirely reorder the automotive industry hierarchy. Tesla, Rivian, Lucid, and many more, will be huge long-term winners. Sono Group — with its unique SEV technology — has a chance to join the Mt. Rushmore of EVs.
EV Stock #4: This Performance Lithium Stock Looks Like a Smart Long-Term Play
In a world dominated by electric vehicles, the company that makes the best batteries is king.
Electric vehicles need batteries. Clean energy grids need batteries. Computers need batteries. Most tech you can think of is built on batteries. And batteries require lithium — lots of it.
It’s pretty simple to see, then, how companies that mine, produce, and supply lithium will make a ton of money over the next decade. As the world shifts toward electric vehicles and clean energy, demand for batteries will soar, and the folks that mine, produce, and supply lithium will sell a lot of it at sky-high prices with sky-high margins. They’ll be swimming in profits!
As long-term investors, we like the sound of that. So, we think it’s time to get bullish — and stay bullish — on lithium stocks. They look like secular compounders for the 2020s.
In particular, we like Livent (LTHM) for 2023.
Livent is one of the largest lithium production firms in the world. It produces lithium compounds such as lithium hydroxide, butyllithium, high-purity lithium metal, lithium carbonate, and lithium chloride, mostly for use in electric vehicle and energy storage applications. Livent focuses more on performance lithium products (derivatives used in energy-dense applications) and not base lithium products. Indeed, performance lithium accounts for about 80% of the firm’s revenues.
Thanks to this focus, the firm also has robust exposure to energy storage markets. EVs and ESS account for about 60% of Livent’s sales. Most of those sales (about 70%) are from the Asia Pacific region.
The company has generated revenues of $589 million over the past 12 months, but that number will be much larger in a few years. Wall Street expects revenues to more than double this year before rising another 30% in 2023 and then another 20% in 2024.
Its balance sheet comprises about $50 million in cash against $260 million in debt, on a business model running at 40% gross margins with 30% EBITDA margins. Free cash flow is negative, owing mostly to the huge capital expenditures (capex) Livent is dedicating to expanding its upstream and downstream production capacity.
The company is worth about $5 billion, which leaves a lot of room for massive upside based on the following catalysts:
- Demand for lithium is expected to explode over the next several years, with most estimates pegging demand growth at more than 5X by 2030.
- The lithium market is a hard market to break into with high barriers to entry due to its capital intensity, limited resource locations, and deeply embedded partnership network. Therefore, the firms that already have a “seat at the table,” if you will, are likely to retain their seats for the foreseeable future.
- Livent’s focus on the performance lithium business gives it a strategic advantage over peers and levers it nicely to the highest growth segments of the market.
- Its 70% geographic concentration in APAC implies a huge runway for growth via stronger U.S. and Europe sales.
- The business model is highly profitable. And once the company stops building out its production capacity (soon), capex will fall, and it will be swimming in huge cash flows.
- On the assumption this company’s revenues soar over the next two years amid rapid production capacity expansion and then grow in line with the lithium market, we believe Livent can push toward $2.3 billion in revenues by 2027.
- Wall Street sees this as a 50% operating margin firm at scale. That would put 2027 operating profits around $1.2 billion and net profits around $900 million.
- On 190 million shares, that implies earnings per share of $4.70.
- A 20X multiple on that implies a 2026 price target for Livent stock of $94.
Batteries. Batteries. Batteries. It’s all about batteries these days, and by extension, that means it’s all about lithium. We see lithium companies as secular compounders in the 2020s. They’ll earn patient shareholders exceptional returns. And Livent is at the top of our list of attractively positioned and valued lithium stocks in the market today.
EV Stock #5: A Hidden Gem That Will be the EV Market’s Biggest Winner in the 2020s
Over the next 20 years, electric vehicles are going to take over the world.
We all know this. Every investor, analyst, and financial media personality understands the enormous disruption coming to the multi-trillion-dollar mobility industry — and they all see it as the “investment opportunity of a lifetime.”
Make no mistake. It is — but because everyone already knows this, everyone has already rushed into electric vehicle stocks, and the big money has already been made.
Just look at the market caps of the leading EV makers in the world.
Tesla: $575 billion.
NIO: $17 billion.
Volkswagen: $90 billion.
Look. I’m not saying that these stocks aren’t great long-term investments. They are — but they aren’t 10X investment opportunities anymore. After all, if Tesla were to rise 10X from here, it’d be a $7 TRILLION company… which, if Tesla were a country, would make it the third most economically valuable country in the world.
That’s not happening…
So, if you’re looking for potential 10X investment opportunities in the EV Revolution, you need to forget the EV makers and look at what I like to call the “derivative plays.”
The EV Revolution will be so big and widespread that it will have multiple, major first- and second-order derivative impacts on the world.
Think charging station operators. All those EVs aren’t going to work unless we have charging stations everywhere.
Or think battery makers. All those EVs need batteries to power them.
It is in these EV derivative markets that you will find potential 10X investment opportunities.
And today, we will tell you about a hidden gem in one of these EV derivative markets. It’s a company that could, by 2030, be one of the most important players in the broader EV ecosystem — yet which no one is talking about today, and which features an exceptionally discounted valuation. If things go as planned, this tiny stock could be an enormous winner in the 2020s.
One very attractive, very important, yet totally under-the-radar EV derivative market is lithium-ion battery recycling.
You have to remember… lithium-ion batteries power EVs. So, as the number of EVs in the world goes from a few million today, to hundreds of millions by 2030, the number of lithium-ion batteries in the world will increase by many multiples, too.
This creates a waste problem.
Lithium-ion batteries are not infinite power sources. They have shelf lives. They’re made, they’re used, and then they’re discarded. If this pattern continues, then by 2030, you’ll have hundreds of millions of lithium-ion batteries sitting around in wastelands across the globe, adding to the world’s already enormous “trash” problem.
Not to mention, there will be significant stress on supply chains to produce enough lithium, cobalt, and nickel to sustain robust production of new batteries every single year.
The solution? Battery recycling.
As it turns out, you can recycle lithium-ion batteries, by mechanically breaking them down and chemically separating out the useful materials — like lithium, cobalt, and nickel — which can then be used to create new batteries.
Battery recycling is the future, since it provides an economically sensible and ecologically sensitive way to power the EV Revolution. Pretty much every major market research firm sees the lithium-ion battery recycling market growing by at least 10-fold over the next decade.
There’s just one tiny problem… and that’s that the science behind recycling lithium-ion batteries is very complex, and no one has yet figured out an efficient way to recycle batteries at a large enough scale to impact the industry.
Until now. One tiny company by the name of Li-Cycle (LICY), which merged with the SPAC, Peridot Acquisition Corp. (PDAC), appears to have cracked the lithium-ion battery recycling code.
Li-Cycle is a $1.7 billion battery recycling company in North America that — thanks to its proprietary, breakthrough “Spokes-and-Hubs” technology process for battery recycling — projects as the unrivaled leader in the EV battery recycling market by 2030.
There are really two big breakthroughs here…
The first breakthrough is in the Spokes part of the process. In this segment, Li-Cycle takes lithium-ion batteries and mechanically processes them into “black mass,” which essentially is just a bunch of shredded lithium, nickel, cobalt, and other metals. The breakthrough here is Li-Cycle’s all-in-one mechanical processing functionality.
Specifically, because mechanically processing lithium-ion batteries and producing black mass is such a complex process, most other recyclers have tailored their processes to specific battery types, and therefore, they have niche end-market applications. Li-Cycle, however, has developed a proprietary method to efficiently produce black mass from any battery type — and it’s the only recycler in the world that has figured out how to do this.
The second breakthrough is in the Hubs part of the process. In this segment, Li-Cycle chemically separates the black mass to produce end-use lithium, cobalt, and nickel products, which are then sold back to battery makers to create new batteries. The breakthrough here is Li-Cycle’s ultra-effective, zero-waste hydrometallurgical process.
Specifically, there are two ways you can turn black mass into usable metal parts. One is through a pyrometallurgical process that involves smelting or burning, and which — while effective — consumes a ton of energy and emits lots of gas.
The other is through a water-based hydrometallurgical process, which is very energy-efficient and emits no gas. Historically, though, hydrometallurgy has not been very efficient (it only recovers about 50% of the battery metals) and produces tons of wastewater — two shortcomings which have limited adoption of the promising tech.
But Li-Cycle has developed a proprietary hydrometallurgical process that recovers about 95% of the battery metals and which reuses its own water. This is, by far, the best chemical processing technique in the market today.
In other words, Li-Cycle is a battery recycling company that has developed two breakthrough technological processes — one mechanical, and one chemical — which will enable it to be the world’s most efficient, cheapest, and cleanest battery recycler.
To be sure, Li-Cycle is in the very early stages of its growth narrative. The company has only built two Spokes facilities, and is currently in the process of building its first Hubs facility.
But the early-stage nature of this company is reflected in the valuation of just $1 billion. And, if management can execute and successfully commercialize the company’s breakthrough technology processes, then this will one day be the $20-plus billion giant of the EV battery recycling market.
EV Stock #6: Don’t Overlook This Small Electric Bus Maker With Big Potential
Every year, about 10 million medium-to-heavy duty commercial busses, trucks and vans are sold to fleet operators across the world.
Very few of them are electric.
In fact, according to Bloomberg NEF, just about 3,600 electric medium- and heavy-duty commercial vehicles (CVs) and busses were sold in the U.S. in 2020, which equates to penetration rate of less than 0.1%.
Clearly, there’s a huge opportunity here.
After all, the whole “vehicle electrification” trend isn’t going to skip over the commercial vehicle market. Just as every passenger car will get electrified over the next two decades, so too will every commercial vehicle.
This isn’t a matter of “if” — it’s a matter of “when.”
And “when” is right now…
As part of its trillion-dollar infrastructure package, President Joe Biden’s administration wants to allocate $7.5 billion toward electrifying America’s busses. Assuming an average price of $100,000, that $7.5 billion is enough to buy 75,000 electric buses.
There are only 400,000 school buses in operation today in the U.S.
In other words, the new infrastructure bill is a huge first step toward electrifying America’s bus fleet. By 2030, most of the buses in America may very well be electric.
We’re not alone in this thinking.
Bloomberg NEF sees the number of electric buses sold in the U.S. rising by nearly 7,000% to over 250,000 vehicles by 2030.
That’s enormous growth.
So, don’t sleep on the electric commercial vehicle market. It may not be as “sexy” as the passenger car market. But the electrification wave across commercial transportation will be one of the most profitable hypergrowth markets of the 2020s.
So how do you play this electric bus market? It’s by buying the electric bus maker that’s dominating this market in Canada, and which has a chance to leverage its early success in Canada to turn into a global electric bus maker worth many multiples of its current valuation.
There is no shortage of electric bus makers in North America. But in the Canadian market, there is one electric bus maker that rules supreme, and that’s Lion Electric (LEV).
Lion Electric was founded in 2008 and is headquartered in Quebec. The company started producing medium- and heavy-duty EVs in 2016. It has found a niche in the electric bus market, where the company has designed a very high-quality and unique electric bus with a fully composite body, advanced charging capabilities, and a noise generator to alert pedestrians when the bus is approaching.
It’s a solid product.
But there are lots of electric bus makers out there with solid products. So… what differentiates Lion Electric?
The company’s manufacturing capabilities.
Long story short, Lion Electric is a favorite of the Canadian government. In March, Prime Minister Justin Trudeau and the Premier of Quebec — Francois Legault — poured $100 million into Lion Electric for the construction of a highly automated battery-pack assembly plant in Canada.
That facility is expected to pair with the company’s 900,000 square-foot U.S. production plant in Illinois to produce about 20,000 high-quality electric busses per year.
In this market, that’s a big differentiator.
Most other electric bus makers are still in the “drawing board” and “concept” phases. Some have rolled out a few prototypes. Very few are driving those prototypes. And even fewer have secured robust manufacturing capabilities, let alone on the order of making tens of thousands of busses a year.
In other words, an inability to produce enough electric buses to meet the demand of huge fleet operators will short-circuit most companies in this space.
But not Lion Electric — they’re ready to meet that demand.
It’s no wonder that Lion Electric’s vehicle order book stood at 817 vehicles as of May 2021, or that the company is delivering 260 of those buses to First Student over the next 12 months (after which, First Student will be the largest operator of zero-emission school buses in North America), or that Lion delivered six trucks to Amazon very recently (and has another 2,500 vehicle deliveries planned for the e-commerce giant by 2025).
This company is executing where other electric bus makers are failing, and it’s showing in the order volumes.
If Lion Electric can keep this execution up — which we believe is doable — then you’re talking about a stock that could easily soar 10X, since the market cap today is barely hovering above $550 million.
So, if you’re bullish on the electric bus market, you should consider taking a position in Lion Electric stock today.
EV Stock #7: A Super Cheap EV Charging Stock You Can’t Pass Up
Given this company’s excellent business model, strong partnership network, impressive growth profile, great margins, robust track record, unique technology, large manufacturing capability, healthy balance sheet, and compelling valuation, we’re compelled to crown it our favorite EV charging stock in the market right now. Altogether, it could be the best EV stock to buy today.
We’re talking about Wallbox (WBX) — an end-to-end, vertically integrated EV charging firm that designs, manufactures, and distributes residential, commercial, and public-use chargers. And it also develops accompanying energy management software solutions for those chargers.
The company got its start in the European residential EV charging market, creating ultra-small, ultra-convenient, and affordable chargers that EV owners could easily install in their homes and use to charge any electric vehicle.
Wallbox has since dominated that market, leveraging its experience in creating basic L2 at-home chargers to develop a full suite of EV charging products, including public DC fast chargers and a first-of-its kind at-home bidirectional EV charger.
Today, the company’s product suite primarily comprises three products:
- Pulsar Plus: An entry-level, 240V, L2 at-home charger that is very small and can charge any electric vehicle at a pace of ~30 miles per hour. Starts at $650. Perfect for new EV owners.
- Quasar 2: A next-gen, bidirectional at-home charger that simultaneously charges an EV and pulls power from that EV to either sell back to the grid or power a home. The company claims the power provided from an EV via the Quasar 2 charger can power a home for up to three days. Starts at around $4,000. Perfect for EV owners looking to become grid-independent, cut energy costs, and/or make money from their energy production.
- Supernova: A public DC fast-charger that provides up to 120 miles of range in about 15 minutes.
In addition to this hardware suite, Wallbox has developed an accompanying software suite of energy management solutions. This includes a residential charger management app called “myWallbox,” a public-use charger locating app called “Electromaps,” and a smart energy management software platform called “Sirius.” MyWallbox and Electromaps are mostly residential-use solutions. Sirius is intended as an enterprise-level, grid-scale solution to optimize energy use, though can be applied to Quasar 2 for optimized energy allocation throughout a home.
Today, Wallbox generates most of its revenue from at-home charging sales in Europe. However, the company is pushing aggressively into the public charging market and is rapidly expanding in North America. Wallbox is also significantly increasing its software suite’s capabilities.
In the future, Wallbox wants to be the provider of all-in-one renewable energy solutions, with its charger at the center of the system.
To accomplish this, Wallbox is partnering with firms across the Green Energy Economy to integrate its charger into every home that is even considering going green.
For example, Wallbox has partnered with solar firms SunPower (SPWR) and Svea so that every customer who installs those firms’ solar panels has the option to also install a Wallbox EV charger to connect to those solar panels.
The company has also partnered with EV makers Fisker and Nissan (NSANY) so that every buyer of an EV from either firm has the option to buy a Wallbox charger with their car.
Wallbox has even partnered with Uber (UBER), offering EV Uber drivers discounts on Wallbox chargers.
Through this extensive partnership network, Wallbox hopes to establish itself as the dominant at-home EV charger that can do much more than just power your EV — it can redefine how your home produces, stores, and uses energy.
Wallbox was founded in Barcelona, Spain in 2015. The company currently has three manufacturing facilities across Spain and China. A fourth facility is under construction in Arlington, Texas, and is expected to be complete by the end of this year. At that point in time, the company expects to have an annual production capacity of 1.1 million chargers.
To date, the company has delivered over 300,000 chargers in over 105 countries. Wallbox is currently worth $1.2 billion, and it has about $350 million in cash on the balance sheet against just $100 million in debt. What’s more, it has done about $109 million in sales over the past 12 months. That sales base is widely expected to grow at a 100% compounded annual growth rate over the next five years.
For all the hype the public EV charging companies get, most of the growth in the EV charging industry will happen in the at-home market because most consumers will charge their EVs overnight at their own homes. That means that by 2030, most homes will have EV chargers installed (whereas very few have them today). BloombergNEF estimates that we will need up to 500 million EV chargers globally by 2040 — it also expects 88% of those to be at-home chargers. The at-home EV charging market has much more growth potential than the public EV charging market, and Wallbox is the early leader in the at-home EV charging market.
We think Wallbox’s early leadership is defensible through its partnerships and technological and manufacturing advantages. Its partnership advantages are rooted in exclusive partnerships with Fisker, Nissan, and other automakers, wherein Wallbox is embedding itself as the EV charger of choice for those EV consumers. The tech advantages are rooted in Wallbox’s patented Quasar technology, which allows for at-home bidirectional charging in a small charger. And the manufacturing advantages are rooted in the company’s four manufacturing facilities, which give it a runway to producing millions of EV chargers per year by 2025.
We are fans of Wallbox’s bidirectional charging technology focus. We think vehicle-to-grid (V2G) and vehicle-to-home (V2H) technology represent the next paradigm of the EV charging industry. At-home EV chargers, equipped with V2G and V2H technology, can do much more than charge an EV — they can power a home. It’s truly game-changing technology. And while still very expensive, Wallbox’s Quasar 2 charger is the pioneering product in this space.
The software suite here has immense upside potential, especially the Sirius energy management software. If Wallbox is successful in making the charger an essential part of energy storage and deployment, software that optimizes those processes will be immensely valuable.
The balance sheet is quite strong, with $350 million in cash against just $100 million in debt. That makes the company’s cash burn today acceptable, implying very little bankruptcy risk. Indeed, Bloomberg’s default risk for Wallbox is just 0.43%.
At 9X EV/sales, Wallbox stock is very cheap for a company growing revenues at 100%-plus year-over-year and with a 40%-plus gross margin business model that should, at scale, produce 20% or higher EBITDA margins with very big cash flows.
Drilling down into it, we like the EV charging sub-sector of the electric vehicle movement, and we love the at-home charging vertical of the EV charging sub-sector. Wallbox dominates that niche. And it possesses the necessary structural advantages to maintain that leadership. This is a fabulous company with huge long-term potential. Plus, the stock is dirt-cheap. That’s a very attractive combination.
EV Stock #8: The Unrivaled Leader in DC Fast Charging
You can’t mine gold without a pick or a shovel. So, during the California Gold Rush, the folks who sold picks and shovels to gold miners became fabulously wealthy.
Let’s extrapolate that story to the current electric vehicle “Gold Rush.”
You can’t drive an electric car without a charger. So, during the EV Gold Rush of the next decade, the companies that make EV chargers will become fabulously successful.
Longtime readers are well aware of this. That’s why we’ve highlighted so many EV charging stocks in these very issues. They are the building blocks of the electrification revolution.
But investing in EV charging stocks is a bit more complex than just investing blindly in any company that makes an EV charger.
To understand why, you have to understand how EV chargers actually work.
EV chargers plug into the grid, which provides AC power. That AC power is then pumped into the EV. Onboard every EV, there is an AC/DC converter which converts the AC power from the charger into usable DC power, which is then stored in the car’s battery.
Given this context, there are two types of chargers out there: AC chargers and DC chargers.
The difference is that AC chargers pump AC power into the car, which converts that power into DC power using its onboard converter. DC chargers have their own converter, so they pump DC power directly into the car and bypass the onboard converter. AC chargers are cheaper and slower. DC chargers are more expensive and faster.
The future of the EV charging landscape will be a mix of AC chargers throughout urban areas, and DC fast chargers on interstate highways.
So, the EV charging companies you want to invest in today for big long-term gains are the companies that are either really good at making and installing super-cheap AC chargers, or really good at making and installing super-high-performance DC chargers.
We will tell you about a company that falls in the latter category. Indeed, this company is actually the unrivaled leader in DC fast charging in America, and has enormous long-term potential. The stock has been beaten and bruised in recent months, and the time to buy and hold for the long haul is now.
There are a lot of EV charging companies out there. But there is only one EV charging company that rules supreme in the DC fast charging market in America — EVgo.
EVgo has been America’s leading DC fast charging company ever since it installed the country’s first urban fast charging station back in 2012. Since then, the company has expanded and built upon its early lead in fast charging, and today owns over 800 DC fast charging stations in the U.S. — good enough to give EVgo ~50% share of the U.S. DCFC market.
So, yes, EVgo is the giant in DC fast charging. No one else even challenges them.
Of course, the important question to ask now is: Well, is EVgo’s DCFC leadership sustainable?
The answer is a resounding “yes” — for a few reasons.
First, EVgo already operates a tough-to-replicate network of over 800 DCFC stations that sit on some pretty valuable real estate across 34 states and 68 metro areas. About 83% of Californians — and 41% of all Americans — live within 10 miles of an EVgo DCFC station. No one else can claim that, and it will take a lot of capex for anyone to rival that.
Second, EVgo has leveraged its leadership position to strike some advantageous partnerships with companies like Tesla and General Motors.
Tesla cars are not compatible with most non-Tesla EV chargers, but EVgo has struck a deal with Tesla to enable EVgo chargers to charge Tesla cars — making them the only non-Tesla DCFC that is able to do so. Meanwhile, GM has contracted EVgo to develop 2,750 EV chargers to be compatible with GM’s future EVs.
These partnerships flesh out the EVgo ecosystem and expand the company’s competitive moat.
Third, EVgo has the resources to keep building. Post-SPAC transaction, EVgo will receive $575 million in cash to help the company fund further DCFC site construction, which will only bolster the company’s first two competitive advantages.
Overall, then, EVgo is in a great position to not just maintain, but actually build upon its early DCFC market leadership position.
If so, then EVgo will emerge in the long run as one of the most valuable companies in the EV charging market.
Yet, the company is worth just $1.7 billion today… while the AC charging leader, ChargePoint, is worth $4.1 billion.
Clearly, the long-term upside potential here is compelling — enough so that you may want to consider adding EVgo stock to your buy list for 2023.
EV Stock #9: The One Company That Can Catch Up to Tesla
Thanks to its industry-leading technology, branding, and production capacity, the Tesla has seen its share of the global EV market expand from ~8% in 2017, to over 15% today.
At this point in time, it looks like no one can catch Tesla in the EV market.
Well… almost no one.
There is one company that can catch Tesla. One company that can rival Tesla’s EV battery technology… luxury branding… and mass production capacity. In fact, we think it’s the only company that has what it takes to truly rival Tesla for global EV market supremacy.
We believe this company is, for all intents and purposes, the “Tesla Killer.”
That company is Lucid Group.
The story at Lucid is pretty simple.
EVs are taking over the world. We all know this. Current EV penetration of annual new car sales hovers around 3%. Most automakers have targeted 30%+ EV penetration rates in their new car portfolios by 2030. Most governments are targeting 40%+ EV penetration rates by then. Consumers are on board with this, too, as 71% of consumers are considering buying an EV and over 40% are committed to making their next car purchase an EV.
The writing is on the wall. EVs will march from ~3% penetration today, to 35%+ penetration by 2030, and likely 50%-plus penetration by 2040.
Right now, Tesla is the undisputed king in this market. They were first-to-market, have the best technology, the most talented team, the biggest manufacturing capacity, so on and so forth — they basically have the best of everything, and as a result, are dominating the EV market without much competition.
But here’s the thing: Tesla cannot be king forever.
That’s not a knock against Tesla. We love the company. Rather, it’s an honest observation about society.
We live in a heterogeneous society, not a homogenous one. We each have own identities, and we enjoy celebrating our individuality. We don’t all live in the same houses. We don’t all wear the same clothes. We don’t all eat the same food, or work the same jobs.
And we sure as heck don’t drive the same cars.
Tesla cars emerged as the “coolest cars on the road” throughout the 2010s because there weren’t many on the roads. It’s simple supply-demand dynamics in a heterogenous society. We all want to be different, and therefore, we want what other folks don’t have — and throughout the 2010s, not many people had Tesla cars, so by virtue, a lot of people wanted Tesla cars.
Now, though, Tesla cars are everywhere. And if Tesla continues to execute and succeed in its mission of creating a $30,000 EV — which we believe they will — the roads are only going to get more and more packed with Tesla cars.
The more Tesla cars hit the road, the less “cool” they will be, and the lower aggregate consumer demand for the vehicles will go…
That’s especially true in the premium channel, where the buyers aren’t all that constrained by price and are very concerned about image. Those luxury car buyers aren’t going to want to buy a Tesla Model S, which looks just like the Tesla Model 3 that the just-out-of-college kid down the street bought last month (and let’s be honest, the Model 3 and Model S look very similar from 10 feet or more away).
They’re going to want something different, and if that something different is a bit more expensive, so be it — it’s the price luxury car buyers are willing to pay for status and differentiation.
In other words, as a result of the simple supply-demand dynamics in a capitalistic, heterogenous society, there exists an enormous opportunity for an EV maker not named Tesla to emerge over the next decade and, at the very least, challenge the king, or, at best, dethrone the king — and that auto maker will likely have to start in the premium channel, where Tesla’s brand equity is diluting most quickly at the current moment.
To be clear, the company that does this is going to have to be great. Because Tesla does have the “best of everything” in the EV industry right now, it’s not going to be challenged or dethroned by a just a random startup, or even a legacy auto company that has no idea how to make EVs.
The company that is going to challenge Tesla for EV market dominance in the 2020s is going to have to be a brand-new auto maker designed specifically to make EVs, and that auto maker is going to need to have it all: Tons of talent, great technology, enviable branding, and much more.
That company is Lucid Group.
Lucid Motors is a pre-production luxury EV maker whose first car model, the Lucid Air, projects to set a new standard for luxury in EVs, with market-leading driving range, interior cabin space, horsepower, charging times, and acceleration.
The company plans to leverage the success of the Lucid Air as the “best EV in the world” to subsequently launch cheaper EV models with robust demand — much as Tesla did throughout the 2010s with the Model S/X and Model 3. Indeed, management’s long-term vision is for Lucid to follow the same playbook as Tesla, but to execute at a higher level with better technology, thereby enabling the company to one day be even bigger than Tesla, selling millions of technologically superior cars across all price-points
It’s a bold vision.
But we think it’s doable. Follow us here…
Four things made Tesla great:
- A super talented team.
- Superior EV technology.
- Awesome brand equity.
- A ton of financial resources.
Lucid is the only EV startup in the world that has all four of those things, and arguably, Lucid actually beats Tesla in every single one of those categories.
All in all, then, Lucid stock has all the necessary ingredients to challenge and potentially even dethrone Tesla in the EV market in the 2020s. Investing now could be like buying Tesla 10 years ago.
EV Stock #10: The Luxury Design King Pioneering an Affordable, Sustainable EV
Auto enthusiasts will have heard the name Henrik Fisker before.
He is a legend of unparalleled reputation in the auto market, mostly because he was the design brain behind many of the luxury automobile world’s most iconic vehicles, such as the Aston Martin DB9, the Aston Martin Vantage, the BMW Z8, and the BMW X5.
So when Fisker designs a car, the world pays attention.
Today, Fisker — through his new enterprise, Fisker — has allocated all his time and efforts to designing an ultra-stylish, ultra-affordable, and ultra-sustainable luxury eSUV: the Fisker Ocean.
This new car, set to start deliveries in the fourth quarter of 2022, is no joke.
Many industry insiders actually call it the “Tesla Killer.”
That’s because the Ocean is a legitimate rival to Tesla’s Model X and Y in terms of performance, design, and features.
It offers best-in-market driving range at up to 300 miles (which is largely consistent with base versions of the Model X and Y).
It also offers four-wheel drive for off-roading, lots of horsepower, a sub 3 second 0-to-60 miles-per-hour get-up, a large digital display screen equipped with a state-of-the-art in-vehicle software platform, and a very aesthetic, futuristic exterior design (all of these features are comparable to the Tesla Model X and Y).
Sure, it’s smaller in terms of cargo space (45 cubic feet with seats down, versus 60-plus cubic feet for the X and Y) and seating space (it’s a 5-seater, versus options for 7-seater in the X and Y).
But the Ocean makes up for those shortcomings via a built-in solar panel roof (which will enable for auto-recharging while driving, and therefore, result in longer driving ranges) and a fully “vegan” interior (the entire interior is made from recyclable materials).
So… on a technical specs and aesthetics basis… the Ocean is close to rivaling Tesla’s Model X and Model Y.
Yet the Ocean will retail for just $37,500 — well below the $50,000 base price for the Model Y, and $80,000 base price for the Model X.
After tax credits, that retail price falls to about $30,000 — putting it on par with most mid-size, gas-powered luxury SUVs out there (and below many of them).
I don’t need to tell you that there’s a lot of demand at the convergence of luxury, sustainability, and affordability. At this convergence, Fisker stands alone with its Ocean SUV.
To that end, if Fisker can execute on manufacturing the Ocean at scale, this company will sell a lot of Ocean cars over the next five years — and the company will be worth a lot more than its current $4 billion implied market cap.
Of course, that’s a huge “if.” There’s a lot of execution risk when it comes to scaling manufacturing for a new car.
Plus, as some of you may know, this is not Henrik Fisker’s first foray into the EV space. His first car — the electric sports car Karma, which counted Justin Bieber and Al Gore as customers — ended up being a flop after the company’s battery supplier went under.
But that’s why Fisker is aiming to outsource all of the manufacturing this time around, through Volkswagen — the world’s largest automobile maker. In so doing, Fisker is significantly reducing execution risk, capital requirements, manufacturing costs, and speed-to-market.
The partnership will also allow Fisker to hyper-focus on design and software — two components that will help the company establish and sustain competitive advantages.
Net net, Fisker has all the right components to turn into a very strong player in the booming EV market over the next few years.
EV Stock #11: A Disruptive Battery Stock to Play the Leap into Solid-State Batteries
Batteries power EVs — and these batteries on the cusp of making an enormous “leap.”
The leap is from liquid batteries (which have a solid cathode, a solid anode, and a liquid electrolyte solution connecting the two) to solid-state batteries (which replace the liquid electrolyte solution with a solid).
Turning batteries into “solids” makes them more compact, smaller, with zero wasted space and more efficiency — meaning this new generation of solid-state batteries lasts far longer and charges far faster.
At the epicenter of this shift is a small company by the name of QuantumScape (QS).
QuantumScape is the highest quality pure play on the solid-state EV battery megatrend.
The bull thesis really boils down to three things:
First, QuantumScape has the best technology in the solid-state battery game.
Specifically, adoption of solid-state batteries has been essentially non-existent to-date for two big reasons: they are exceptionally expensive to make, and they tend to short-circuit because of something called “dendrites,” which form in the solid electrolyte substance over time.
QuantumScape’s technology has addressed both of these shortcomings.
The company has employed an anode-less battery cell design, which eliminates anode manufacturing costs and brings QuantumScape’s all-in battery costs to 17% lower than all-in costs for traditional lithium-ion batteries.
Meanwhile, the company’s proprietary design includes a ceramic electrolyte with high dendritic resistance — and therefore, QuantumScape’s batteries don’t have dendrite problems.
Thus, QuantumScape is positioned to create a new class of EV batteries that are cheaper, last longer, and charge faster.
Second, QuantumScape has all the intangibles — a talented management team, big partnerships, and seasoned investors.
The management team — headed by the former founder of Infinera and a Stanford grad — is essentially a handpicked team of the best-of-the-best of Stanford and Berkeley physics grads. Indeed, the company’s Chief Scientific Officer is the Chair of Mechanical Engineering at Stanford.
Volkswagen — the world’s largest auto maker who is committed to electrifying its vehicle portfolio — has poured $100 million into QuantumScape and is committed to using the company’s solid-state batteries in its cars by 2025.
Meanwhile, QuantumScape’s list of early investors includes Bill Gates. Yes. That Bill Gates.
Third, QuantumScape has tons of cash to execute on its long-haul growth strategy.
Through the SPAC deal, QuantumScape will receive more than $1 billion in cash and funding commitments. Volkswagen also has a lot of cash to throw at the company. So does Bill Gates.
In sum, then, QuantumScape has sufficient resources to not worry about cash burn today and instead focus on the company’s long-term goal of becoming a ubiquitous, best-in-breed supplier of solid-state batteries into the EV industry.
If management does execute on that ambitious goal, the potential upside for QuantumScape stock is enormous.
EV Stock #12: Could This Be the European Tesla?
Polestar is a European EV maker that got its start as a racing technology firm. And now, it’s purely focused on making premium electric vehicles like Tesla, Rivian, and Lucid.
In the 1990s, Polestar was a Swedish race team. It then began making high-performance racing Volvos in the early 2000s. The team saw a lot of success, and as a result, Volvo made Polestar its official racing partner in 2009. Six years later — in 2015 — Volvo actually acquired Polestar.
At first, Volvo leveraged Polestar’s racing technology to supercharge its own premium models. However, in late 2017, Volvo launched Polestar as a standalone company focused on making EVs.
The company launched its first standalone EV — the Polestar 1 — in 2017. It was an ultra-high-performance sportscar EV that retailed for about $155,000. The car was considered an enormous engineering success; however, commercial demand was limited by its high price-point.
Consequently, Polestar actually discontinued production of Polestar 1 in 2021 and pivoted its business strategy to launching a portfolio of premium (but not ultra-premium) EVs, ranging from $55,000 to $100,000. Thus far, Polestar has announced four new vehicles in this category — Polestar 2, 3, 4, and 5 — with only one (Polestar 2) having officially launched.
The Polestar 2 is a ~$50,000 electric hatchback with 270 miles of driving range. Polestar 3 is an electric SUV with a debut date of October 2022. Polestar 4 (a sporty SUV D coupe) and Polestar 4 (a luxury GT F coupe) are expected before 2025.
Thus far, Polestar has delivered over 50,000 cars, with 29,000 deliveries in 2021 alone. By 2025, management is expecting its line-up of Polestar 2 through 5 to enable the firm to hit nearly 300,000 deliveries.
Polestar is currently worth about $17 billion… a figure with lots of room to grow as the company continues to attack the right market — premium EVs.
The premium EV market is one of the larger EV markets today. And due to high demand for EVs in the upper-income band — as well as the typically prohibitive costs of EVs these days — it projects as the fastest-growing sector of the industry. In 2020, about 1.4 million premium EVs were sold globally. That number is projected to grow by nearly 30% per year into 2025 to around 5 million units. As one of a limited number of participants in this high-growth, high-volume market, we think Polestar is in the right place at the right time with the right product.
Management has a history of execution. This is a firm that’s been creating high-performance vehicles for nearly 30 years and has already sold over 50,000 electric cars. Most of Polestar’s primary competitors have done neither. Therefore, there is a record of execution here that’s lacking amongst the company’s main competitors.
Given this, we see management’s target of hitting nearly 300,000-unit deliveries by 2025 as entirely achievable. Of course, Polestar is benefitting from strengthening regulatory tailwinds in the U.S. and also in Europe and China as well.
We like the company’s broad EV portfolio, as we believe it spans a wide range of interests and maximizes Polestar’s potential buyer pool. We also believe Polestar’s portfolio of EVs has an attractive pricing schematic, with most falling in the “sweet spot” — expensive enough to maintain premium brand equity but not expensive enough to be unattainable to likely buyers.
Further, the company will be able to leverage Volvo’s already enormous manufacturing footprint, allowing Polestar to attain unprecedented speed to market with its products among EV startups. The Volvo partnership also allows Polestar to create an asset-light business model with high margins and lots of free cash-flow generation.
That said, competition is formidable. Our best guess is that 75% of the world’s top 1,000 automotive engineers work at Rivian, Lucid, and Tesla. That is Polestar’s direct competition. Therefore, we think Polestar will struggle to differentiate its cars technologically from the competition.
The rewards far outweigh its challenges, however. The premium EV market is expected to measure 5 million units by 2025. We think that number will double in 2030 to roughly 10 million units. In fact, Polestar has a reasonable chance to grab between 5% to 10% of that market. At the high end, that implies a million deliveries in 2030. Assuming a $75,000 average sales price, that equates to $75 billion in projected 2030 revenues.
Given the company’s asset-light business model, gross margins should be able to run toward 30%. For similar reasons, the Opex base will likely max out around 10% of revenues. That implies 20% operating margin potential at scale.
Assuming those margins and a 20% tax rate, Polestar could net $12 billion in profits by 2030. A 20X price-to-earnings multiple on that implies a long-term valuation target of $240 billion.
The Final Word on Electric Vehicle Stocks
Sometimes, investing is hard. Other times, it’s really easy.
Let me give you an example.
Previously in 2022, the U.S. House of Representatives passed the largest climate bill ever, setting the stage for a decade of hypergrowth ahead for the EV, solar, hydrogen, and energy storage industries.
We think now is a fantastic time to go long high-quality clean tech stocks, especially electric vehicle companies. Buy them today, wait a few years, and cash out in 2025-2026 with 5X, 7X, or even 10X returns.
It may just be that simple.
Broadly, the Clean Tech Revolution was already underway. But now, the President Joe Biden is throwing nearly $400 billion into this megatrend to accelerate it. So, over the next few years, clean tech stocks should soar.
With the aforementioned 12 stocks to buy, we hope you now have a way to play this clean energy boom with EV stocks, battery stocks, and electric vehicle charging stocks. These companies still have their work cut out for them over the next year. But considering their talent, their track records, and the resources at their disposal, these 12 EV firms should have what it takes to dominate the electric car industry. Even if they don’t all succeed as well as we hope, all it takes is one stock to 10X to make your 2023 EV portfolio a major winner.