Companies to Watch in the Electric Vehicle Space
A half-decade ago, the mass adoption of electric vehicles was derided by some as a pipe dream. Today, it’s looking increasingly likely that they will end up killing their rival – the internal combustion engine.
Battery range is increasing. More companies – new and mainstream alike – are getting in on the action. Prices are falling. And, in nations around the world, drop-dead dates for ICE vehicles are becoming common.
EVs are not a fad – they’re a real trend. As investors, now is the time to strike. Don’t dawdle – if you wait too long, trends eventually become conventional wisdom. By then, it’s too late to enjoy the benefits of exponential growth.
Knowing this, which EV (or EV-adjacent) companies should you invest in? In this post, we’ll talk about four companies on our radar.
In the coming years, the electric vehicle industry will make a few investors obscenely wealthy. But, for most, this dream will be inaccessible. There’s no denying it – starting a vehicle company is incredibly expensive.
Just as in the California gold rush, however, fortunes weren’t just made digging ore. Others made a handsome profit selling shovels and opening taverns.
Ideanomics (IDEX) is approaching the EV sector with the same logic. They’re not a big electric vehicle manufacturer. For the most part, they are tackling the regulatory aspects of the EV revolution. China has set deadlines for the near-decarbonization of vehicles – a deadline that IDEX owes its existence to.
Specifically, vehicles in the public realm must be electrified by 2022. To help regional governments and private sector businesses meet this deadline, IDEX is offering consulting. By sharing their knowledge of the electrification process, they are helping operators meet a fast-approaching deadline.
But, Ideanomic’s plans go further than that. They are also investing in charging stations and wholesale, prepaid electricity. By establishing positive relationships upfront, they’re priming customers to buy from them in the future.
But, is IDEX a good investment? Skeptics point to their most recent results – a 6.9% decline in annual revenue YoY. Further, they are struggling to achieve profitability. However, like many other companies, the COVID pandemic has distorted results.
While the government may extend the commercial retrofit deadline, there is no sign they will do so. Even if Beijing extends the deadline, 2021 will still be a hectic year for IDEX. Toss in their plans to expand vertically, and you have a stock that’s worth a speculative gamble.
Buy, but only with money you can afford to lose. Want to learn more about IDEX? Click the link for more info.
As you now know, China is aggressively tackling the climate crisis. With ICE vehicle sales barred by 2035, companies are rushing to bring new electric models to market.
NIO has quickly emerged as one of the leading players in China’s EV market. Founded in 2014, this rapidly growing firm earned 666 million USD in Q3 2020 – a stunning 146% YoY increase.
These recent successes have led observers to crown them as the “Chinese Tesla.” This comparison is apt – in 2016, they got approval from the California DMV to test their self-driving technology. Ultimately, NIO plans to offer vehicles with Level 4 Autonomy – a mode where the car can handle most driving tasks.
Most of NIO’s recent blockbuster results stem from sales of two models – the ES6 and ES8. Despite a COVID-related slowdown in sales, NIO is on-track to beat last year’s numbers. But, even these achievements have paled in comparison to their stock market valuation. From January to May 2020, NIO traded in a tight 2.50-3.50 USD band. But, after lockdown lifted, sales picked up big-time. In Q2 and Q3 2020, vehicle deliveries increased by 191% and 194% YoY, respectively.
These results led to a buying frenzy that lifted NIO from 3.18 USD on May 1 to 55.23 USD on November 23. Over the past month, though, NIO has experienced a correction of more than 10%. Presently, shares are sitting at 47.01 USD.
Is NIO a buy? In our view, it’s a hold. There’s no question they’ve done well in a challenging year. But, we have our doubts they’re 15x more valuable than last year. Long-term, they’ll grow into a marquee player in China. But, wait for NIO’s price to cool a bit before buying.
Were it not for Elon Musk’s steely determination, we wouldn’t be writing this post. As recently as 2017, Tesla teetered on the edge of bankruptcy. The mogul, however, persevered. In the end, he secured needed funding to see through Model 3 production, and the rest, as they say, is history.
Today, Tesla is worth more than 600 billion USD. In Q3 2020, they delivered 139,300 vehicles – a 43.6% YoY increase. But, most promising, they strung together four profitable quarters for the first time. This feat made them eligible for listing on the S&P, and won them respect from many institutional investors.
However, some remain critical. In particular, Ryan Brinkman of J.P. Morgan argues TSLA stock is dramatically overvalued. Given its performance over the past year, he may have a point. After the COVID cash in March, TSLA was at its 52-week low of 70.10 USD. As we write this piece, this equity sits at 646 USD.
Increased YoY sales and Tesla FINALLY turning a profit has a good deal to do with this rise. However, when you see 1,000% valuation increases, some regression is inevitable. If you have TSLA already, hold. But, if you haven’t bought already, we recommend waiting for a correction before getting on-board.
Xiaopeng Motors (NYSE:XPEV)
NIO may be attracting most of the EV buzz in China, but they aren’t its only homegrown player. In 2014, Xiaopeng Motors threw its hat into the EV ring. Like NIO, they also tested their autonomous vehicles on California’s roads.
Despite their early start, however, Xiaopeng Motors (AKA Xpeng) is lagging behind NIO. NIO is on track to deliver 100,000 vehicles by year-end, while Xpeng had only delivered 21,341.
However, that number is about 87% YoY. So, slow start notwithstanding, Xpeng appears to be doing well. Also, look at their funding. Before going public, financiers like mobile giant Xiaomi, Sequoia Capital, and Abu Dhabi’s sovereign wealth fund collectively tossed 900 million USD at Xpeng.
When Xiaopeng Motors launched its IPO, they doubled their starting valuation, raising 1.5 billion USD. Since that day, they’ve doubled in value again, going from 21.22 USD to 43.80 USD.
Where is XPEV going from here? A month ago, XPEV hit an all-time high of 74.49 USD. Then, they took a haircut of more than 40% —however, context matters. As mentioned above, sales are going well, with a near-doubling over last year. Instead, XPEV’s price fell for two reasons – dilution and over-regulation fears.
In November, XPEV announced it would offer more shares for sale. At the same time, the Chinese government announced plans to investigate Evergrande Auto, a smaller competitor. In China, the government often intervenes in private enterprise affairs – a discomforting fact for many capitalists.
Despite these pressures, we are bullish on XPEV. Their share offering is likely a move to fund production increases – it’s not a sign of a company in trouble. Compared to competitors, their stock price is a tremendous value. Buy.
EV Stock Growth Prospects are Looking Electric
As the world responds to the climate crisis, the EV market stands to gain. By investing in high-growth electric vehicle companies that are well-managed, you can ride this profitable wave.