The Best Electric Car Stocks in 2021
Make no mistake, 2020 was the year of the electric car stock! Electric car companies have made a major splash in the stock market this year as investors have been flooded by a host of electric car initial public offerings (IPOs) or special purpose acquisition company (SPAC) mergers.
Notable electric vehicle (EV) debuts in 2020 include Nikola Corporation (Nasdaq: NKLA), Xpeng (NYSE: XPEV), Hyliion (NYSE: HYLN), Fisker (NYSE: FSR), Lordstown Motors (Nasdaq: RIDE), QuantumScape Corporation (NYSE: QS), Workhorse Group (Nasdaq: WKHS) and Canoo (Nasdaq: GOEV).
But it’s not just automakers looking to capitalize on consumers’ insatiable demand for electric cars. When the largest and most influential company in the world – Apple (Nasdaq: AAPL) – is secretly planning to bring an electric car to market, you know there’s room for further growth!
Despite the excitement surrounding these new electric carmakers, you cannot discuss this industry without acknowledging Tesla (Nasdaq: TSLA) and its enigmatic founder Elon Musk. Shares of Tesla have exploded 695% in 2020 alone and have catapulted Musk to the richest man in the world, beating out the likes of Microsoft founder Bill Gates.
The Best Electric Car Stocks Right Now
Legendary investor Warren Buffett once noted there are 3 “I”s of every new business cycle: innovators, imitators, and idiots (for decorum sake, we’ll refer to these as stocks to avoid).
The best way to position yourself in the early stages of a growth market is to focus less on traditional valuation metrics and instead invest in companies that are positioned to continue to shape the industry while avoiding those that are unable to do so, despite their past performance.
Yet, while we’re still in the beginning stages of the electric car revolution, the euphoria has reached a fever pitch. That euphoria comes with risk. It’s important for new investors to properly understand the industry to position themselves for long-term success.
So, we’ve combed through the electric industry and have bucked stocks into three categories: electric car innovators, imitators, and stocks to avoid. Whether you’re an existing EV investor or looking to start investing in the space, you’ll want to get the full rundown on the electric car space in 2021.
Electric Car Innovators
A year characterized by the emergence of Covid and a global pandemic hardly seems like the time for EV stocks to have taken off, yet partially thanks to progress in self-driving (also known as autonomous driving), the excitement around electric vehicle makes has reached a fever pitch. Below we’ll list two companies that are true innovators as we enter 2021.
Tesla Motor (Nasdaq: TSLA)
Let’s get this out of the way: Yes, Tesla is expensive due to its meteoric stock rise of 695% in 2020. Still, there’s no company more influential in the space and Tesla will continue to benefit as the world continues to trade in internal combustion engines for electric cars. The company offers a pure-play into the trend that’s unrivaled.
Tesla delivered nearly 370,000 vehicles in 2019, an increase of 625% from 2015. The company delivered 35% more electric cars – 499,500 — in 2020. In the fourth quarter alone, Tesla delivered nearly 180,570 vehicles, which puts them on only slightly below their delivery target of a half million cars in 2020.
If 35% growth doesn’t get you excited, remember deliveries are also impacted by production capabilities and this is Tesla’s holdup. Simply put, cars are driving off Tesla showrooms faster than they can make them! This is a great problem for a carmaker to have.
Tesla’s opportunities lie in its ability to expand its lineup. Love it or hate it, Tesla’s Cybertruck had developed a cult-like following. Cybertruck shipments are expected to begin rolling off the manufacturing line before the 2021-year end.
Tesla has a hidden weapon Wall Street is eying carefully: its self-driving software that currently costs $10,000 per vehicle. However, a future move to a software-as-a-service subscriber product or a move by Tesla to create a fleet of self-driving vehicles to compete with Uber is an untapped area for revenue growth.
The bottom line is Tesla investors are betting their lead in electric vehicle technology and self-driving will give the company future opportunities that make it much more than a traditional carmaker. At a market cap of more than $800 billion, Tesla is now worth more than two times Toyota, the world’s second-largest automotive company.
Magna International (NYSE: MGA)
Needless to say, it won’t simply be the consumer-facing brands that will win from the rise of the electric car, there will be a host of suppliers and various middlemen that will benefit from this shift.
To date, many automakers are choosing a soup-to-nuts approach, which includes designing, manufacturing, and assembling all components of their electric cars. While this allows total control, it is an expensive and slow process. Magna International is innovating in the electric vehicle space by partnering with these companies and performing these critical functions and will win from growth across the space.
Magna is no newcomer; it has a track record of partnering with existing automakers like Ford and General Motors in traditional auto manufacturing but has been aggressive in the electronic vehicle space. Magna recently formed a joint venture with LG to manufacture the critical electronic powertrain for third-party automakers.
Earlier the company formed a partnership with Fisker to manufacture its electric Ocean SUV. This asset-light model allows Fisker to quickly bring its ideas to market and win electric vehicle market share while providing Magna a new growth market.
What has many excited about Magna is the company’s relationship with Apple as earlier it was tapped to help Apple on its clandestine electric car project codenamed Titan. Because of the secrecy of the project, we’re unsure of the full scope of its work on the project but the recent joint venture announcement after it was reported Apple was starting to get serious about its electric car ambitions seems more than a coincidence.
Regardless of Apple’s intentions, Magna is quickly becoming a critical supplier to electric vehicle companies and should benefit from the broad growth across electric vehicles. Magna won’t have the same upside potential as startup EV makers, but it’s a company that features robust cash flow and stability while also providing exposure to the space.
Electric Car Imitators
Imitators aren’t companies that we’re highlighting “yellow flags.” These companies have serious potential within the electric car market. However, with both of these companies, there are reasons to be cautious as we look toward the future.
General Motors (NYSE: GM)
I know what you’re thinking: General Motors is not a serious electric carmaker. That’s understandable. GM’s history with electric and hybrid vehicles is long and without great success. In the late 1990s it launched, and subsequently ceased production of the EV1. From there it was dragged into the hybrid and electric market kicking and screaming, forced into the market by the success of Toyota’s hybrid Prius.
Its response — the Chevy Volt hybrid — was considered a failure despite billions in federal government subsidies. GM further cemented its commitment to large gas guzzlers by joining the Department of Justice’s lawsuit against the state of California for fuel economy standards before dropping its involvement in 2020.
What General Motors conceded was time as it gave Tesla a runway to become the largest automaker by market capitalization in the world. However, GM is starting to see the error of its ways under future-focused CEO Mary Barr and is starting to respond in a major way. GM is investing heavily in electric vehicles, planning to spend $27 billion to build out its electric-vehicle fleet by 2025.
The company created a buzz with its GMC Hummer EV, selling out within minutes. GM might have arrived late to the party, but the company has the assets, production prowess, and existing stable of vehicle brands to quickly catch up.
And looking even longer-term, GM announced they aim to end sales of gasoline and diesel vehicles by 2035.
Investors understandably treat General Motors as a traditional automaker, so the stock is cheap compared to others on this list. If GM can successfully reposition itself as an electric car stock, which is increasingly likely, investors could be in for significant returns.
Nio Limited (NYSE: NIO)
The easiest way to know if you are an imitator is when you’re described by using another company. However, that’s not necessarily a bad thing as the “Tesla of China” has carved out a niche for itself in its domestic market. Nio benefits from its Chinese roots as the country gives significant incentives for electric car purchases and from a Chinese government that is committed to ensuring its manufacturing sector continues to grow, particularly with critical areas like heavy machinery and transportation.
Nio now faces pressure from Tesla on its home turf – Tesla delivered its first Made in China cars from its Shanghai Gigafactory in late 2019 — but China is a large market and likely will not be winner-take-all. Look for strong growth from both companies as disposable income continues to rise in China and allow more of its 1.4 billion citizens to afford vehicles.
However, it must be noted that NIO sports a market capitalization of $87 billion on sales of just $1.9 billion in the past twelve months, and also had negative earnings of more than a billion dollars in that time. That means NIO has a price-to-sales multiple of 46X, which is higher than Tesla’s 28X.
As we noted at the beginning of this article, valuations are stretched across the electric vehicle space, but Chinese EV makers are in a deeply competitive market at all priced at significant premiums. In addition to Nio’s 46X sales multiple, XPeng trades at 68X sales while Li Auto shares trade at 33X sales.
Stocks such as Shopify (Nasdaq: SHOP) or even Tesla have seen incredible returns from extreme valuations in recent years. However, we need to raise a “yellow flag” on Nio at today’s share price.
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Electric Car Stocks to Avoid
At this stage, most electric vehicle stocks will fall into this category as they have been bid up to unsustainable levels with little innovation or record of success to date. This space seems eerily reminiscent of the buzz surrounding tech stocks in the early dot-com era when any internet-based stock exploded regardless of its quality. It turned out poorly for many investors. However, there are a few that are notably riskier than the overall sector.
Nikola Corporation (Nasdaq: NKLA)
To date, GM’s efforts in the electric car space have been marked by missteps. This often occurs when an incumbent initially misses the boat on new technology and needs to catch up. GM’s response included a partnership agreement with hydrogen and electric fleet-truck maker Nikola which included taking an 11% stake while supplying the company with its fuel cell and battery technology for its Badger pickup truck. Shares of Nikola exploded, looking like a true success story in the EV space.
However, the celebration was short-lived for Nikola shareholders. GM later modified the deal, ending production for the Badger truck, when it was revealed that Nikola had overstated its technology, including using natural gas instead of its hydrogen fuel it claimed to support and that a promotional video used a semi-truck that wasn’t fully functional.
Founder and CEO Trevor Milton stepped down amid additional allegations, both personal and professional. Later, Republic Services discontinued its collaboration with the company to design and build zero-emissions trash trucks.
Because of the high price tag, reliability and trustworthiness are critical for automakers, especially considering Nikola’s strategy appears to be focused on the commercial vehicle market. Businesses place a significant premium on durability because they typically buy many units at once and for function.
It’s hard to win business in this area, nearly impossible if your reputation is damaged. It’s possible Nikola can eventually reverse the narrative, but there are better ways to invest in this high-growth sector with less operational risk.
Blink Charging (Nasdaq: BLNK)
Blink Charging is a “pick-and-shovel” investment into the electric car market, providing pay-to-charge public electric kiosks. At first sight, this seems like an intriguing way to benefit from the growth of electric cars and charging station networks, but there’s too much risk in this stock.
The issue is valuations are disconnected from reality as the stock has exploded more than 2,000% across the past year alone and the company now trades at roughly 500 times its trailing revenue.
We’re willing to overlook expensive valuations for fast-growing leaders that are truly innovating in the space. Unfortunately, it doesn’t appear Blink is either of these. Next year’s revenue is estimated to be $13 million.
Additionally, it’s hard to imagine that Blink will be an innovator in the space as away-from-home charging will likely become a commoditized market and most electric car owners will continue to perform charging at home using manufacturer-supplied equipment. Eventually, investors will understand this and it’s likely a stock sell-off will soon follow.
EV Stocks: Dozens of Potential Investments
Volvo recently announced that by 2025 they expect half their sales to come from EVs, and expect to exclusively sell electric vehicles by 2030. EV projections vary widely, with IHS estimating 12.2 million EVs sold in 2025 while ARK Investments believes that number could be as high as 40 million. Regardless of the exact projection, with just 2.5 million EVs sold in 2020, it’s clear electric vehicles should see incredible growth in the years ahead.
So if you’re looking for stocks beyond what we featured above, we recommend focusing your search on the following segments.
EV Stocks in China
It’s projected that China will account for 44% of all EV sales in 2021, significantly outpacing both Europe (28%) and North America (16%). Clearly, if you’re looking to invest in EVs you don’t want to ignore China.
Earlier we featured Nio, but it’s far from the only EV stock to be found inside China. In addition to Nio, XPeng (Nasdaq: XPENG) is another company seeing significant EV growth. The company is starting to directly manufacture its own cars in a newly built factory. Another popular Chinese EV stock is Li Auto (Nasdaq: LI).
While we noted earlier these stocks are expensive in terms of valuation, they also have “home field advantage” in the world’s most important EV market and for that reason alone are worthy of your research.
EV Battery Stocks
The battle around battery scale (how cheap can you make them!) and technology is becoming pivotal for EV companies. Beyond Tesla and its Gigafactory, there are a number of interesting stocks in the space.
BYD (OTC: BYDDF) is a Chinese EV manufacturer that even Warren Buffett has invested in. The company produces EV passenger vehicles ranging from passenger cars to buses. BYD has a long track record in both battery production and technology innovation, making it a strong bet on the trend toward EVs.
QuantumScape (NYSE: QS) is a more speculative stock, but is developing battery technology that could prove game-changing. The company has been developing a solid-state battery that it hopes to mass-produce by 2024. If it can successfully produce its batteries in large quantities, QuantumScape’s battery technology could substantially increase the energy density of batteries while decreasing their charging time.
EV Supplier Stocks
Some suppliers are much better positioned for the transition to electric vehicles. There are stocks that produce components such as LIDAR, a technology that could prove essential for self-driving cars, but there is also a broader supply chain that could rapidly change.
For example, On Semiconductor (Nasdaq: ON) has said they receive between $50 and $100 worth of chip revenue in cars with internal combustion engines, but could receive $1,800 per autonomous EV. Other supplier stocks that could see large revenue growth in the shift to EVs include Magan International (NYSE: MGA) and Taiwan Semiconductor (NYSE: TSM).
Should You Invest in Electric Car Stocks?
According to the International Energy Agency, electric car sales increased from 2.6% in 2019 to 3.0% in 2020. Despite this impressive increase, the electric car industry still has a long way to grow.
Companies are spending billions on research and development to gain market share and many of these same companies have pledged to go “fully electric” in the coming decades.
The electric car industry is here to stay, but before you consider which electric car stocks to buy, you’ll want to hear this.
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