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Investment Opportunity Breakdown: Electric Vehicle Stocks

EV stocks - Investment Opportunity Breakdown: Electric Vehicle Stocks

Source: Sopotnicki / Shutterstock.com

Electric vehicle (EV) stocks have gained popularity in recent years as the adoption of EVs is rapidly increasing worldwide.

Broadly defined, EVs are vehicles that are “all electric” and don’t use gasoline. The majority of EVs are battery-powered; however, there are a few alternatives. Alternatives to battery-powered electric vehicles include the following:

  • Plug-in hybrid electric vehicles that offer gas-only and electric-only driving
  • Fuel cell electric vehicles with power systems that use hydrogen gas and oxygen to produce electricity

Most battery-electric vehicles have a driving range of 300 to 400 miles, with ranges increasing to over 500 miles as new models are introduced. In contrast, plug-in hybrids achieve an electric-only range of approximately 50 miles.

With these details in mind, let’s take a closer look at the key catalysts behind the shift toward vehicle electrification. Understanding this will help us form better decisions when choosing which EV stock (or stocks) to buy.

EV Stocks and the Rapid Move Toward Electrification

First, here’s a breakdown key market drivers behind the shift toward vehicle electrification.

The advantages of electric vehicles extend beyond the avoidance of fossil fuels. For example, EVs don’t require nearly as much maintenance (e.g., oil changes, emissions checks and parts changes) compared to gas cars. For the most part, electric vehicles can be charged at home using standard 120-volt or 240-volt house plugs, or at public or workplace charging stations.

Another benefit of battery-operated electric cars is their use of so-called DC fast chargers. These chargers provide more than 100 miles of range in less than 30 minutes

In addition to supporting sustainability, clean technology and environmentally conscious initiatives, investors have turned to EV stocks for their close alignment with environmental, social and governance (ESG) concerns. In the U.S., President Joe Biden’s $1.2 trillion infrastructure bill earmarks billions of dollars for electric vehicles and clean energy. It also includes a commitment to support electric vehicle uptake — from charging infrastructure to increasing the federal tax credit.

The administration has set a goal of reaching 50% electrification by 2030.

Large corporations have also made public commitments to green energy initiatives and are beginning to replace their gas-powered logistics fleets with electric or low-emission vehicles. The transition to electric fleets is expected to reduce operating costs, while also fighting climate change and urban pollution.

Walmart (NYSE:WMT) has committed to becoming a regenerative company powered by 100% renewable energy by 2035. Amazon (NASDAQ:AMZN) expects to achieve a zero carbon footprint by 2040, with electric vehicle deliveries expected to reach up to 15 additional U.S. cities by the end of 2021. The company has committed to purchasing 100,000 electric delivery vehicles from electric vehicle manufacturer Rivian Automotive (NASDAQ:RIVN).

UPS (NYSE:UPS) has placed an order for 10,000 electric delivery vehicles from U.K.-based electric vehicle manufacturer Arrival (NASDAQ:ARVL). DHL (OTCMKTS:DPSGY) says zero-emission vehicles currently comprise a fifth of its fleet, with more expected. And FedEx (NYSE:FDX) pledged to replace 100% of its pickup and delivery fleet with battery-powered vehicles by 2030.

These are among the key reasons why EV stocks are frequently in the spotlight today. But there’s more to the story behind the opportunity in EVs.

Electric Vehicles: Market Size and Catalysts

On a global basis, only 1 in 250 cars on the road is electric, which means electric vehicles account for only 2.2% of the global vehicle market share. That said, the industry is experiencing rapid growth. The global EV market is expected to reach $917.70 billion in 2028, growing at a CAGR of 20.6% over the forecast period. Electric cars are expected to account for at least 10% of global auto sales by 2025

Several positive secular forces are contributing to this rapid growth. Most importantly, increasing environmental concerns have paved the way for more supportive government policies and regulations. Governments around the world are focusing on electrification of commercial vehicles to reduce greenhouse gas emissions. 

Rapid technological advancements are also bringing down the cost of batteries, with various battery producers specializing in new charging techniques to increase performance and efficiency

China has the largest fleet of electric vehicles. As of December 2020, China had the largest number of highway legal plug-in passenger cars with about 4.6 million units, or 42% of the global fleet in use. In Asia, rising disposable income, increasing air pollution rates, and technological advancements in charging infrastructure are driving demand for EVs. 

Europe represents approximately 3.2 million electric vehicles, or about 31% of the market. It’s also the fastest growth market, with a 60% CAGR from 2016 to 2020, compared with increases of 36% in China.

In the U.S., just over 1.3 million vehicles on the road were battery electric vehicles at the end of December 2020– representing less than 1% of the country’s total vehicles. However, the numbers are increasing rapidly and many industry observers expect  EVs to dominate the American car market within the next decade. California has the highest share of EVs of any U.S. state – owing to various rebates and other incentives.

Top EV Stocks to Consider Now

Here are the top stocks to watch in the electric vehicle space today.

Now that we’ve identified some of the key investment vehicles in the space, let’s take a look closer look at how each of these players fits into broader electric vehicle ecosystem.

Understanding the Electric Vehicle Value Chain 

The EV industry is composed of global Original Equipment Manufacturers (OEMs), which include both traditional automakers and pure-play electric car manufacturers. The traditional automakers have been slow to electrification, but have begun to invest heavily in order to catch up to their pure-play electric-vehicle upstarts. Traditional automakers with electrification strategies include Ford (NSE:F) and General Motors (NSE:GM) as well as Nissan (OTCMKTS:NSANY), Honda (NYSE:HMC), Toyota (NYSE:TM) and Volkswagen (OTCMKTS:VLVLY). 

The current EV market share leader is U.S. OEM Tesla (NASDAQ:TSLA), which delivered roughly 500,000 electric vehicles in 2020 — more electric vehicles in the United States than all other manufacturers combined. With that output, its vehicles also account for nearly 79% of all new EVs registered in the United States. 

Tesla is followed by China’s top EV maker, Nio (NYSE:NIO). In its bid to become a leader in electric vehicle technology, Beijing has supported the industry with subsidies, looser restrictions and the buildout of charging infrastructure. Other Chinese OEMs include Li Auto (NASDAQ:LI) and Xpeng Motors (NYSE:XPEV).   

Newer EV entrants include Lucid (NASDAQ:LCID), Rivian, Fisker (NYSE:FSR), Nikola (NASDAQ:NKLA) and Workhorse (NASDAQ:WKHS). These companies differ primarily in geographic focus, market segment (cars versus SUVs, pickups etc.), manufacturing scale and market capitalization. The SUV segment is the largest EV segment, with about 370 total electric car models available in 2020, a 40% increase from 2019. 

In addition to electric vehicles, the industry also consists of EV infrastructure and electronic components providers, including battery manufacturers, charging infrastructure providers, assemblies and safety components and other technology suppliers.

Key Challenges Bearing Down on EV Adoption

Given the capital-intensive nature of auto manufacturing, a key challenge for EV companies has been the ability to scale. More recently, several newcomers have come to market with substantial cash raises, ensuring their ability to scale their manufacturing operations. 

Global supply chain constraints, exacerbated by the Covid-19 pandemic, represent another challenge for the industry, with major automakers reporting shortages of key semiconductors and other components. 

Electrification infrastructure remains limited and represents a key constraint on the ability of the electric vehicle market to scale. For large freight and logistics companies, building out an electric fleet as easy to drive and fuel as a gas fleet requires building out a massive charging infrastructure, electricity and utility connections. Investors must consider all of these challenges when considering which EV stocks to buy.

The Bottom Line on EV Stocks

With total sales valued at $120 billion in 2020 (a 50% increase from 2019), the electric vehicle market represents a significant investable portion of the global economy with exponential growth expected over the next decade.

On the date of publication, Joanna Makris did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joanna Makris is a Market Analyst at InvestorPlace.com. A strategic thinker and fundamental public equity investor, Joanna leverages over 20 years of experience on Wall Street covering various segments of the Technology, Media, and Telecom sectors at several global investment banks, including Mizuho Securities and Canaccord Genuity.

Click here to follow her Behind the Wall series, where she provides the insider scoop on the hottest technologies and trends from today’s business leaders, industry experts and money managers.


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