It has been a fantastic year for electric vehicle (EV) stocks as investors have bid shares in a number of companies higher than expected for the automotive industry to become electric.
Tesla has led the fee higher, almost 500% for the year, but investors today have a large and growing number of stocks to choose from when it comes to electric cars.
These are early days and the sudden startup feels like it could be a bubble. Some of these companies are sure not to live up to their promise. But the potential for electric cars is real, and although the market is a little frothy right now, strong, long-term companies tend to come out of a bubble. The question is, how do you differentiate the survivors from the pretended ones?
As the headline suggests, these stocks are by no means guaranteed winners. Investors should limit any exposure to these stocks to a small portion of a diversified portfolio. But for those interested in taking a high-risk, high-potential reward flyer on a next-generation electric vehicle stock, here̵
Do not count Nikola out yet
Lou Whiteman (Nikola): My bad colleague Danny Vena, one of the smartest investors I know, says he would not touch the Nikola stock with a 10 foot rod. Given the controversy that has surrounded the company in a short time as a public company, his caution is understandable.
Nikola faces accusations that it overhyped its products and technologies in investor demonstrations, and founder and former board chairman Trevor Milton has left the company under a dark cloud. An agreement that the company entered into to cooperate with General Motors (NYSE: GM) in doubt.
The accusations against Nikola boil down to skepticism about the power of its technology. Nikola undoubtedly admitted just as much in his attempt to collaborate with GM and use the technology of the larger carmaker.
It all looks awful. But that is also all in the past. If Nikola can get the deal with General Motors over the finish line, I think there’s a decent shot that the core business can still turn into something.
Nikola is under new management, including Steve Girsky, once GM vice chairman, on the board. Prior to the controversy, the company also had strong consumer interest in its electric pickup of Badger and had already taken 14,000 pre-orders for a number of heavy trucks.
At the end of the day, Nikola just needs to deliver a product that lives up to the hype. Customers do not care if it is technology developed internally or acquired by GM that drives their trucks if the trucks work as promised.
I’m cautiously optimistic that Nikola can get there with GM’s help. And while the stock is still not a good trade, it is down more than 65% from the June highs.
The risk is real and the caution is understandable. But despite Nikola’s miserable run in recent months, there’s still a chance for a happy ending for this EV trucking company.
This stock is big in 2020, but it may be just the beginning
John Rosevear (NIO): NIO’s share has already risen well above anyone’s expectations by 2020. Even those who expected big things for the Chinese electric car maker would not have predicted a gain of over 1,700% since April 1st.
But here’s the thing: There may be more to come.
As the example with Tesla has shown us, a company’s exciting potential is sometimes more important than traditional green-eyed valuation measurements. That may be what’s happening to NIO, which has emerged as a homemade leader in China’s booming electric car market.
While it is not impossible for NIO’s shares to retire after such a run, it is also not difficult to see catalysts for future growth in the next few quarters. Consider:
- NIO recently increased its production capacity to 5,000 vehicles per month, and they sell all vehicles they can manufacture. It said this week that it is working on another increase to around 7,500 per year. Month that will be effective early next year.
- NIO also plans to launch two new models in 2021. Both will be sedans that are still selling well in China, and both will be based on a new version of its electric vehicle platform. Together with the three current SUV models, the five-model portfolio will cover much of the premium vehicle market.
- NIO is expanding and upgrading its network of automated battery replacement stations that provide “recharging” in three minutes for a fixed fee or by subscription. There are already over 150 stations in operation; NIO says most of its owners live within three miles of a station now.
- NIO’s “batteries-as-a-service” (BaaS) business is growing rapidly. The idea is that consumers can buy a vehicle without a battery (at a lower price in advance) and subscribe to the company’s battery replacement service. It increases sales by making NIO’s vehicles more accessible and creates a continuous revenue stream.
- NIO recently launched a 100 kilowatt-hour (kWh) battery pack as an upgrade to the standard 70 kWh pack. Owners of NIOs with the 70 kWh package can choose to upgrade to a 100 kWh package for a fee (another revenue stream!), And BaaS subscribers who choose the 70 kWh option by default can temporarily upgrade to 100 kWh battery packs when needed (before a car ride, for example).
NIO is also investing some of the revenue from its recent secondary offering in its advanced driver assistance and self-driving research, which it has partnered with global technology leaders including Intel‘s Mobileye subsidiary. This is another area where technology and smart thinking can create recurring revenue streams.
Long story short: Yes, NIO shares are expensive. But Tesla’s stock seemed expensive at $ 200 a ton. Share, and see what happened. If you feel like missing the rocket, there is another that could also go sky high in time.
This Chinese EV manufacturer is growing like a weed
Rich Smith (XPeng Inc.): Let me begin my stock idea today with a disclaimer: I do not invest in stocks on which I can not attach a valuation. Full stop.
If a company has no profit and no free cash flow, it’s not a stock I want to buy – no matter how fast it grows revenue. That said, I have to admit that I find the Chinese electric car manufacturer XPeng exciting – and I’m apparently not alone.
I mean, how can you does not be fascinated by a company that has gone from nearly $ 1 million in revenue two years ago to more than half a billion dollars in sales recorded over the last 12 months? Last week, XPeng reported that in the third quarter alone, its sales grew 365% year-over-year and achieved generally accepted accounting principles (GAAP) gross profit for the first time ever (gross profit: 4.6%).
Admittedly, operating costs and other expenses meant that XPeng ended up losing money with a net loss of $ 169 million on the bottom line. Still, the company far exceeded Wall Wall’s expectations for the quarter. In fact, analysts at JP Morgan called the results “a clear blow from the top to the bottom line.”
XPeng is simply growing like a weed, and Q4 unit sales are expected to grow by 17% sequentially. Assuming the company can keep this up, the stock may even grow faster than the Chinese market for “new energy cars” (ie electric cars, plug-in hybrids and fuel cell cars) as a whole – which is great when you look at it as analysts predict that sales of such “NEVs” will grow 43% annually over the next five years.
I do not know when – or if – all this huge sales growth will translate into actual GAAP profitability for XPeng, but it’s definitely fun to watch.