Buy the Dip in EV Stocks? Here Are 7 to Consider
If you're looking to gain exposure to electric vehicle stocks while they're still down, here are some names worth watching.
2022 has been a tough year for growth stocks. The Nasdaq is well into correction territory, and many of the tech and growth names of the past several years have been hit particularly hard.
Electric vehicle (EV) stocks have been no exception. The entire industry has lagged as investors have rotated out of growth names and into cheaper value stocks.
So, what's the story here? Is the epic run in EV stocks over, or is it merely taking a well-deserved break?
Part of it comes down to the Federal Reserve. The value of a stock today is determined by its future earnings discounted to today's prices. The higher interest rates go, the lower those future earnings are worth in today's dollars.
As a result, the Fed's aggressive response to inflation tends to hit growth stocks like EVs the hardest. Most are not particularly profitable today, so the price is heavily influenced by those expected future profits, which get less and less valuable the higher interest rates go.
There's also the competition factor. The notion of an "electric vehicle company" may seem antiquated in just a few short years. Virtually every traditional automaker is jumping into the fray, and some, particularly in Europe, have already effectively reinvented themselves. For example, Volvo now offers an electric version of every car it sells, and by 2030 the company has committed to being 100% electric. No Volvo car will be available with a combustion engine.
That said, the introduction of new competitors isn't all bad. It normalizes electric vehicles and expands the overall market.
"When it comes to renewable energy, this is not something that happens years in the future. It's happening today," says Allister Wilmott, president of ARC Aviation Renewables, a solar-power and LED aviation lighting firm. "Already, about one in 40 new cars is electric. But that number grows every year, and 20% or more of all new car sales will likely be electric by 2030."
The growth is there, and it's happening before our eyes. The question is simply how to best play this trend.
Today, we're going to take a look at seven of the largest and most widely traded EV stocks. This isn't necessarily a recommendation list – some of these electric vehicle stocks might indeed not be right for you.
Every stock on this list is highly speculative, so you should only purchase them if you have a high tolerance for risk. And you might want to wait for some indication that the stocks have bottomed out before putting money at risk. But if you're looking to play the trend of rising consumer embrace of electric vehicles, these EV stocks are the ones you'd want to consider.
Data is as of April 28.
- Market value: $906.9 billion
- Price-to-sales: 16.0
For many investors, Tesla (TSLA, $877.51) is synonymous with electric vehicles the same way that "Coke" is synonymous with fizzy soft drinks.
There were electric vehicles before Tesla, of course, but no one wanted to drive them. The styling was typically awful and the cars lacked power.
Tesla changed all that. Led by its charismatic CEO Elon Musk, Tesla made electric vehicles cool.
But despite its recent pullback in 2022, the EV stock remains wildly expensive. Today, TSLA trades for 16 times annual sales. To put that in perspective, Apple (AAPL) – one of the highest-margin hardware makers in history – trades for just 7.2 times sales, and most automakers trade for far less than 1 times sales.
Slicing the numbers differently, Tesla sold a little over 900,000 cars last year, and if things go well might sell around 1.5 million this year. At that level and given Tesla's current market cap, investors would be paying nearly $600,000 for each car sold.
Investors clearly aren't valuing Tesla like a car company. They're valuing it like a high-flying tech startup. And perhaps that's reasonable given the company's leadership in battery technology and autonomous driving. But Tesla is expensive even by tech stock standards.
All the same, a similar argument could have been made at virtually any point over the past 13 years and it would have been equally true. Yet TSLA shares are still where they are today. The shares might be choppy until this broader market correction runs its course, but Tesla is one of the best EV stocks to consider on any prolonged dip.
- Market value: $30.9 billion
- Price-to-sales: 4.8
Nio (NIO, $16.93) is a Chinese electric vehicle maker, which makes it interesting for several reasons.
To start, China has far less of a domestic energy industry to support and still imports most of its fossil fuels. This gives the country far more of an incentive to lower energy imports by pushing electric vehicle ownership.
Furthermore, China's air quality is abysmal in most cities, and moving its car fleet from fossil fuels to electric vehicles would certainly help move the needle on that problem.
And China's relationship with the West is, shall we say, frosty. China is gunning hard for its homegrown technology companies to gain market share on their Western rivals, at least within China's borders.
In 2020, China passed rules requiring that 40% of all car sales in China be electric vehicles by 2030. That's a big deal, to say the least. And as one of China's electric vehicle champions, NIO stock is a way to play the trend of a greener China.
Again, though, you'll need to be careful here.
Chinese stocks do not have the best reputations for clean accounting, and Nio carries a lot of debt to boot. The company isn't profitable yet and may not be for a long time. Over the trailing 12 months, the stock posted nearly $10 billion in losses and the company isn't expecting to turn a full year of profit until 2024.
NIO's shares are down by roughly half this year and by nearly three quarters from their all-time highs. While NIO might still emerge as a global electric vehicle powerhouse, it's never a good idea to chase a stock lower. You might want to wait for the EV stock's price to reverse course and trend higher for a few weeks before nibbling on this one.
- Market value: $20.7 billion
- Price-to-sales: 6.2
For another play on the Chinese EV market, consider XPeng (XPEV, $24.08), which trades in the U.S. as an American depositary receipt (ADR). The company is based in Guangzhou and went public in 2020 at the peak of the EV stock frenzy. While the shares have been trading for less than two years in the United States, XPEV has been in operation since 2014.
XPeng can be thought of as a Chinese version of Tesla. In addition to making electric vehicles, the company is also developing autonomous driving capabilities and operates a network of charging stations.
XPEV currently operates 772 supercharging stations spread across 308 Chinese cities. This gives the company a significant competitive advantage in its home market, as it allows it to offer free lifetime charging services to its customers.
Its models are still relatively unknown in the U.S., but the company's G3 SUV and P7 sedan are best sellers in China. The company delivered 15,414 vehicles in March, a 202% increase over the year-ago period.
As with the other EV stocks on this list, XPeng has struggled this year. Shares of the electric vehicle maker are down by more than half so far in 2022 and by about two-thirds from their all-time highs.
This is definitely on the riskier side of the electric vehicle market, but if you believe in the Chinese EV story, XPeng is worth a good look.
- Market value: $23.3 billion
- Price-to-sales: 5.0
And for one last Chinese EV play, consider Li Auto (LI, $22.12). Li was founded in Beijing in 2015 and went public in the U.S. in July 2020.
The company designs and manufactures premium "smart" electric SUVs. Its first model available for sale was the Li One, a large, six-seat SUV. The company started production in November of 2019 and has been increasing its sales at a healthy clip. Li delivered 31,716 vehicles in the first quarter, up 152% year-over-year.
That's promising, but like many of the electric vehicle stocks on this list, Li is still an early stage company, and 31,716 is hardly a mass-production number. Annualized, that puts sales at a little over 120,000 for the entire year.
The Chinese government is backing the rise of electric vehicles, but you still have to consider these companies highly speculative. These are upstarts trying to make their names in a brutally competitive field.
Like its fellow EV stocks, Li's shares have really struggled of late, down by about a third year-to-date. New COVID restrictions in China certainly aren't helping on that front. But, once the broad selloff in growth stocks has run its course, Li may certainly be worth a good look.
- Market value: $214.7 million
- Price-to-sales: 96.3
If you think an over-indebted, money-losing Chinese carmaker is a speculative play, take a look at Electrameccanica Vehicles (SOLO, $1.81). Electrameccanica is a small Canadian firm with just 216 full-time employees and a market cap of a little over $200 million.
You're not really buying a company here. You're buying a concept, as the company generated its first sales just this past October, delivering 93 vehicles in the final quarter of 2021.
Electrameccanica sells its cars under the Solo, Tofino and eRoadster brands, and let's just say they're a bit different. The Solo, for example, has only one seat and three wheels, making it look more like a go-cart than a passenger vehicle. But if you're looking for minimal environmental impact, Solo is your car.
It's worth mentioning that Solo is also one of the most economical models on the market with an MSRP of just $18,500.
SOLO went public in 2018, and it has been a rocky ride.
Shares exploded higher during the epic bull market in EV stocks in 2020, topping out at $13.60. Since then, SOLO is down about 87%.
Electrameccanica is unlikely to ever be a major player in the electric vehicle market. But given its niche in small and affordable models, it could be a takeover target by one of the larger EV makers or even a traditional automaker in the future.
- Market value: $28.4 billion
- Price-to-sales: 119.4
For a more rugged alternative, consider the shares of Rivian Automotive (RIVN, $32.18). Rivian designs, manufactures and sells electric SUVs, pickup trucks and delivery vans and counts Amazon.com (AMZN) among its strategic partners.
Rivian bills its R1T pickup as the world's first "electric adventure vehicle." It can go from zero to 60 mph in just three seconds and can tow up to 11,000 pounds, which is only slightly lower than the 14,000-pound towing capacity of a gasoline-powered Ford F150.
The company's R1S is its SUV offering, and offers seating for up to seven passengers.
Rivian is still a tiny company and produced just 2,553 vehicles in the first three months of 2022. But its niche in the pickup, SUV and delivery space makes it interesting.
Shares have been in freefall since November, so you might want to wait for some indication the bleeding has stopped before diving in. This is a highly speculative play even by the standards of the EV stocks on this list, so please be careful when putting your capital at risk.
- Market value: $444.0 million
- Price-to-sales: N/A
Along the same lines, consider shares of Lordstown Motors (RIDE, $2.26). Like Rivian, Lordstown specializes in electric pickup trucks. Founded in 2019, the company manufactures and sells the Endurance, a full-sized electric pickup primarily for fleet customers.
EV stocks are highly speculative, and Lordstown is one of the most speculative of the speculative. Already in 20220, shares have traded as low as $2.05 and as high as $3.69. And RIDE is currently down 36.5% for the year-to-date.
What's more, Lordstown Motors faces brutal competition, not just from Rivian but also from Ford's (F) electric F150. So, for any investors wanting to take a stab at this one, they might want to keep their position size modest.
That said, Lordstown could also be a prime candidate for a short squeeze. At the time of this writing, short interest in the shares represented a full 23% of the float and nearly nine days to cover.
In plain English, that means that a lot of investors have bet heavily against the stock. So any good news ahead could force short sellers to buy back shares in a hurry to cover their short positions.
There are no guarantees, of course. But as recent experience has shown us, short squeezes can be once in a lifetime investment opportunities.