“The time is right for electric cars – in fact, the time is critical.” – Carlos Ghosn
Electric vehicles have existed since the dawn of the automotive industry, yet it is only now that they seem truly feasible.
Like many industries over the past decade, the electric car market grew exponentially, riding on the backs of major industry tailwinds like the ESG movement and increased government spending.
And with eccentric companies like Tesla challenging the status quo, automakers and investors around the world sought to capitalize on this growth by prioritizing speculative profits over rational business fundamentals.
However, with the economic landscape changing quickly, it appears that reality is hitting harder than most had anticipated, and the fate of the EV market seems more in doubt than ever before.
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But it isn’t all doom and gloom.
Despite the price of EV stocks collapsing, many of the industry tailwinds continue to press on as more consumers shift their spending habits toward a greener future.
And given that the market itself is relatively young, a lot has yet to be determined about the role that electric vehicles will play in our society over the coming decades.
Which begs the question…
Are EV stocks dead?
Well, to answer this question, we explored the market at large and provided some thoughts on three of the hottest EV stocks in the market.
If you’d like to learn more about our stance on this polarizing market, continue reading below.
The Electric Vehicle Industry at a Glance
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Regardless of what the headlines might tell you, 2022 was an incredible year for the EV market as adoption continued to increase at an exponential rate.
As of October 2022, 7.7 million new passenger plug-in electric vehicles were registered globally and are expected to reach 10 million units sold by year-end, according to InsideEVs.
Though the final results for this year have yet to be determined, the EV market is projected to reach $194 billion in 2022 and is forecasted to grow at an annual rate of 17.5% until 2028, per Vantage Market Research.
With so much room for growth, the top EV manufacturers are benefitting tremendously from this demand with BYD Auto ($BYDDY), Tesla ($TSLA), and Volkswagen ($VWAGY) increasing sales by 197%, 43%, and 28% YoY, respectively.
Since Q3 2022, BYD Auto holds the top spot as a producer with a global market share of 20%, followed by Tesla (13%), Wuling (5%), Volkswagen (4%), and GAC Motors (3%), according to Counterpoint.
As for electric vehicle sales by country, China is well ahead of the next closest market with 3.5 million units sold in 2021 (51.7%), followed by Germany (696 thousand units, 10.2%), the United States (631 thousand units, 9.3%), and the Rest of Europe (470 thousand units, 6.9%), per Visual Capitalist.
With so many competitors at play, it is clear that the EV market is ripe for the taking as businesses from all around the world compete for every driver’s dollars.
Overall, the market should remain prosperous for years to come as we continue to shift away from gas-guzzling vehicles and into greener alternatives.
Two Reasons to be Bullish about Electric Vehicle Stocks
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1. Government Initiatives
With increasing demand by citizens for greener alternatives across a variety of industries, governments are taking action by investing in infrastructure, offering subsidies, and increasing regulations.
These measures will help strengthen the adoption of electric vehicles as households and businesses are incentivized to use them for both financial and social reasons.
For example, Canada established regulations that require all vehicles sold in the country to be 100% zero emission by 2035.
2. Accelerating Adoption
Unlike, in years past, climate change is becoming a major topic of discussion and encouraging consumers to demand cleaner methods of transportation.
Plus, with high-quality products hitting the market, it is becoming increasingly feasible to purchase an electric vehicle, instead of a carbon-emitting alternative.
In the course of four years (2018-2022), US EV sales projection more than doubled, growing from an estimated 21% to 53%, according to Recurrent.
Two Reasons to be Bearish about Electric Vehicle Stocks
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1. Insufficient Charging Infrastructure
While it is likely to change as global adoption increases, for now, charging station infrastructure continues to be a deterrent for some consumers as they opt for a more reliable and accessible fueling solution.
Furthermore, with the standardization of EV fueling stations becoming a problem of its own, nations must work together to create a harmonious infrastructure strategy so that drivers can use their vehicles anywhere.
According to SkyQuest Technology Consulting, there are over 2.3 million charging stations worldwide (as of November 2022), but the number is expected to pass 16.83 million stations by the end of 2028.
2. Manufacturing Backlogs
Due to the surge in demand, as well as geopolitical constraints like Covid, manufacturers are struggling to keep up with EV orders as customers are forced to wait anywhere from 3-6 months for their car, and possibly even longer.
With insufficient plants and manufacturing parts, delays in deliveries, across the industry, are likely to persist until either demand subsides or the appropriate infrastructure is built.
For example, Tesla’s global electric car order backlog reached a peak volume of 476 thousand units but has since declined below 200 thousand, as per InsideEVs.
Top Three EV Stocks to Add to Your Watchlist
Now that we have covered the EV industry market at large, it is time to discuss three of the best EV stocks to add to your watchlist.
However, rather than talking about the top companies based on market capitalization or market share, we thought it would be neat to explore EV stocks of various sizes and experience.
Therefore, here are three of our favorite EV stocks available on the market today.
Tesla ($TSLA)
- Market Cap: $355.91 billion
- Price: $112.71
- YTD Return: -68.00%
- CEO: Elon Musk
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As one of the best EV businesses in the world, it comes as no surprise that Tesla is on our list.
Despite $TSLA shares falling 68% this year, the company continues to accelerate growth with hundreds of thousands of vehicles being sold annually and seven Gigafactories located around the world.
Not only that, but in 2020 Tesla became profitable for the first time ever, producing a net profit of $721 million and free cash flows of $2.79 billion.
Since then, the car company has strengthened its position as a top competitor, increasing its profits to $11.18 billion (+393.81% annually), and its free cash flow to $8.91 billion (178.85% annually), over the trailing twelve months.
These improvements can largely be attributed to its massive economies of scale, favorable brand appeal, and advanced data analytics.
Given that most pure-play electric vehicle manufacturers are unprofitable, its position is extremely advantageous and a testament to its business model, especially during a recession.
Overall, the company dominates the US EV market with a 65% stake, with nearly 340 thousand vehicles registered in the first nine months of the year, and 13% of the global market share.
While the company has certainly demonstrated an ability to succeed, not everything is as glorious as promised.
With the company facing multiple lawsuits, manufacturing disruptions in China due to Covid, and a series of other unfortunate events, a lot must go well in the next few years if the company wishes to maintain its position.
On top of CEO Elon Musk being slammed for buying Twitter, the company is dealing with a federal lawsuit after allegedly misleading customers about the capabilities of its full self-driving features; and a Dogecoin debacle that could result in $258 billion in damages.
If these, and others, are proven to be true, and Tesla fails to deliver to customers, its relationship with stakeholders could be ruined with possible long-term consequences.
All in all, the company is poised for success in the future, but it may also end up hurting itself if Elon continues to act recklessly when managing the company.
Though $TSLA could fall more over the coming months, we believe that its financial position and competitive advantages will help it overcome any short-term challenges.
BYD ($BYDDY)
- Market Cap: $94.38 billion
- Price: $48.49
- YTD Return: -28.16%
- CEO: Chuan-Fu Wang
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A worthy competitor of Tesla, BYD Auto, a Chinese electric vehicle automaker, is a force to be reckoned with.
With a 20% share of the global market, BYD has come a long way from its humble beginnings as a battery manufacturing company and is now the dominant EV player in China and across the globe.
By leveraging its strength and expertise with batteries, the company began developing electric and plug-in hybrid vehicles in 2003 and is now expected to reach 1.88 million neighborhood electric vehicles (NEV) by the end of the year.
While the majority of its sales are still in China, BYD is planning to change that by quickly expanding into international markets like Europe, Japan, Thailand, Mexico, and others.
As of the most recent quarter, the EV car company sold nearly 17,000 units internationally in Q3, a small fraction in comparison to Tesla which sold over 343,000 units internationally.
Despite the lack of diversification, the business has built a formidable competitive advantage through its in-house battery and chip manufacturing, which allows it to cut costs substantially and eliminate major supply chain constraints as well.
Unlike Tesla who buys most of its batteries off-the-shelf, BYD produces all of its batteries at its facilities which includes its BYD Blade batteries, a specialized LFP battery, and a cheaper sodium-ion battery as well; BYD supplies Blade batteries to Tesla Berlin.
It is possible that for this reason, Warren Buffett’s Berkshire Hathaway became one the largest shareholders of BYD (7.73% or 20.49% in H shares), given that the legendary investor often favors low-cost producers in his portfolio.
However, just in case you weren’t impressed already, BYD further demonstrates its long-term focus through its founder and CEO Wang Chuan-Fu who owns 19% of the company and is currently the seventh richest man in China.
Overall, with backing from one of the greatest investors of all-time, solid shareholder alignment, and a major manufacturing cost advantage, BYD is an excellent choice if you are looking to diversify your investments in the EV market.
Lucid ($LCID)
- Market Cap: $10.72 billion
- Price: $6.38
- YTD Return: -83.23%
- CEO: Peter Dore Rawlinson
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After its IPO via SPAC in July 2021, Lucid Motors soared to $69.85 billion in January 2022 but has since fallen 83% since its peak.
While this is a common occurrence in today’s market, Lucid is of particular interest given that it produces an exceptional in-house product that is capable of challenging Tesla for the top spot in the US EV market.
Originally, Lucid Motors claimed that its Lucid Air was the “quickest, longest-range, fastest-charging electric car in the world,” delivering 500 miles per charge, thus outperforming the Tesla Model S and Rivian R1T in battery efficiency.
Though these were merely claims, the company eventually proved itself when it cheerfully announced on September 16, 2021, that its Lucid Air received an EPA Rating of 520, beating the Tesla Model S Long Range by more than 100 miles.
But it has experienced its struggles as well.
Due to “extraordinary supply chain and logistics challenges,” Lucid Motors’ CEO Peter Rawlinson informed investors in early 2022 that the expected number of electric vehicles sold would be in the range of 12,000 to 14,000 units, versus an earlier estimate of 20,000.
However, since that announcement, the company failed to meet those expectations by a mile and is anticipating to only deliver 6000 to 7000 by the end of the year.
Despite this, the company reported that it has more than 37,000 reservations for its Air model, meaning that deliveries will likely increase as production ramps up and the current economic landscape improves.
But with net losses amounting to $1.87 billion TTM, the company will need to use more than just its $3.85 billion cash pile if it wishes to survive the unpredictable nature of a global recession.
For investors, this is likely to be more of a long-term speculative play due to the financial uncertainty of the company and its current logistic challenges.
However, if it can resolve its business bottlenecks and supply chain issues, then it is possible that Lucid eventually establishes itself as one of the premier products in the electric vehicle industry.
What Should You Do?
If you are wondering whether or not we believe EV stocks are dead, the answer is NO.
Though the industry is likely to experience some significant headwinds in the short term, the long-term prospects of the EV market seem favorable.
With global adoption growing exponentially and government initiatives pushing for greater investments into the industry over the long run, any near-term challenges will likely subside as the economy recovers and the companies adapt.
Since nothing is certain, investors should focus on already profitable electric vehicle stocks that are also cash flow positive.
In times when the economic conditions are worse than they normally are, it is best to invest in businesses that are predictable and more likely to survive the pitfalls of a recession.
All-in-all, the electric vehicle market seems very promising in the long run and we are excited to see where it is headed.