The EV (Electric Vehicle) Stocks to Watch and the Tidal Wave
of Interest Behind the EV Market
Insight Highlights
- Some of the EV stocks and companies to watch include Rivian, Lucid Motors, Nio and others.
- Some investors believe the industry may still face challenges like limited range and slow charging that could dampen growth expectations.
- EV sales could rise to 12.2 million by 2025, according to research firm IHS Markit.
The recent success of the electric vehicle industry has been years in the making, and although many commentators are calling the EV trend a bubble, some believe there is much more growth to come.
“EV stocks could climb up to 50% in 2021, and it’s not just going to be a Tesla world," according to Wedbush analyst Daniel Ives. Analysts are bullish on EV makers and EV battery specialists. “This is one of the most transformational growth trends in the last 20 or 30 years in terms of EV, and many are going to play and win in this sector over the coming years,” Ives added.1
POTENTIAL EV STOCKS TO WATCH AND HOW THESE COMPANIES MADE A NAME FOR THEMSELVES IN THE INDUSTRY
Rivian2 - Electric-vehicle startup Rivian may go public as soon as September of this year at a $50 billion valuation according to various news outlets. With billions in backing from high-profile investors, a manufacturing plant already up and running, commercial and consumer EVs on the way, and future models in the works, Rivian has emerged as one of the more promising challengers to Tesla that's also not a legacy car brand.
Rivian pegs itself as a high-end EV maker for the adventurous crowd — sort of like what Land Rover is for gas-powered vehicles. The company has two consumer vehicles set to hit the streets this summer: the R1S SUV and the R1T pickup truck. Both vehicles have all-wheel drive and promise to be capable off road. Rivian is also set to launch its long-promised electric truck this year, with backing from heavyweights including Amazon, which, in 2019, contracted Rivian to build it a fleet of 100,000 battery-powered delivery vans by 2030. Rivian also has the backing of Ford, which plans to use Rivian technology in its own offerings.
Some notable investors in Rivian3: Electric vehicle-maker Rivian closed on a $2.65 billion investment round led by T. Rowe Price Associates Inc. that also included Fidelity Management and Research Company, Amazon’s Climate Pledge Fund, Coatue Management, and D1 Capital Partners as well as several other existing and new investors. Rivian is now valued at $27.6 billion, according to a person familiar with the investment round. To date, Rivian has raised $8 billion since the start of 2019.
Lucid Motors4 - Lucid has received a lot of attention as a potential EV stock to watch after mere rumors that it would go public via a merger with Churchill Capital IV (CCIV), which sent the SPAC soaring.
“Reports of a possible deal between Lucid and Churchill Capital IV have been circulating for about a month now, prompting the special purpose acquisition company to put out a statement back in January 2021.
As of mid-February 2021, CCIV is up more than 400%, with much of the gains due to speculation of an agreement.” CCIV shares have been in a downward slide in the weeks since, however, as the stock currently changes hands at around $25 per share.
Lucid aims to unseat Tesla5
Source: US office of Energy Efficiency & Renewable Energy @FT
When Lucid Motors revealed it would in fact be going public via a reverse merger with Churchill Capital IV the deal valued Lucid at $24 billion and would provide the upstart automaker with $4.4 billion to expand its Arizona-based plant.
Lucid aims to get its high-end luxury sedan, the Lucid Air, on the road this year, and eventually have the Arizona plant pumping out as many as 365,000 units per year. Lucid Motors is headed by former Tesla engineer Peter Rawlinson and promises better performance than Tesla.6 Rawlinson said that the carmaker expects production of a less expensive version of the luxury sedan in 2022, followed by a sport utility vehicle code-named Project Gravity in 2023.7
Nio (NIO) - When looking at EV stocks to watch, Nio, the Chinese premium electric car startup company based in Shanghai, recently announced a novel idea that some find risky, but if successful could change the landscape of the EV industry. Nio plans to sell its battery-powered cars without the battery, in order to reduce the price of its vehicles. However, Nio will also give their customers access to Nio's network of battery-swapping stations at a premium—a big idea that sets Nio apart in an EV market that is getting more crowded by the day.8
Nio stock was up more than 1,100% at its peak in 2021, standing at a market cap of $61 billion, right in line with General Motors' (GM) market cap of $63 billion. Since then, EV stocks have faced a steep correction in which Nio lost around 45% of its market cap, yet some find this new valuation an attractive entry for the Chinese electric vehicle maker.9
Tesla (TSLA) - Tesla is widely acknowledged for popularizing the EV space. For Tesla, global expansion is the easiest way to keep pace with the new crop of competitors, and it’s made progress on that front. The company has worked to make many of their vehicles available overseas, built a production plant in China and is also in the midst of constructing its first European plant in Germany.
Tesla’s move into China was crucial, as China has the world’s largest car market and the popularity of Tesla is growing. Its next move is India, also one of the world’s largest markets and will be nearly as important for the company’s continued growth.6
Tesla itself has been in the spotlight throughout 2020. The company became the most valuable carmaker on the planet and achieved the necessary qualifications for inclusion in the S&P 500.8
Volkswagen (VWAGY)10 - When looking at these EV stocks to watch, Volkswagen has been a long-standing player in the auto industry. Volkswagen says more than 70% of its European sales will be EVs by 2030, up from their previous target of 35%. In the US and China, it expects half of its sales to be EVs by this time frame, including Passats and Jettas.
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CONSIDERATIONS
“The excitement around electric cars in recent months has had the hallmarks of a bubble,” wrote Gavekal Research’s Louis Gave. For Gave, expected growth simply cannot keep up with battery, semiconductor, and lithium production.
Research Affiliates’ Rob Arnott claims, “in the highly competitive and capital-intensive auto industry, the January 2021 valuations of electric vehicle manufacturers are simply not sustainable over the long term.” Arnott pointed out that electric-vehicle makers are worth roughly the same as the entire traditional automotive industry, despite generating a tiny fraction of sales. “The EV phenomenon will not change the fact that the auto industry will remain highly competitive and capital intensive,” added Arnott. “Not every company can be a winner.”11
As the EV market continues to grow globally, the demand for charging stations will grow. Other than price, in the past the two biggest drawbacks for consumers have tended to be EV’s limited range and slow charging. Battery innovation is a potential solution for both demand bottlenecks and offers an opportunity for investors to gain exposure to growing EV adoption.12
While most industry leaders welcome government efforts to jump-start new technology markets such as electric vehicles, auto makers worry that subsidies will only have a short-term impact and without broader structural changes won’t create a self-sustaining market. Instead, they urge governments to focus more on developing infrastructure such as charging stations, providing support for building battery plants, and taxing carbon-dioxide emissions.
Manufacturers say the incentives and an explosion in the number of new EV models must come together at the right time, energizing both supply and demand.13
THE INVESTMENT EXPLOSION IN EVs & ITS GLOBAL IMPACT12
With the expansion of the EV sector, the potential of creating wealth over the long-term could be a promising opportunity for investors.
While there is no guarantee that any of the above-mentioned EV companies will find long-lasting success, and while many doubts still exist as to the viability of the EV industry to replace traditional fossil fuel, there is robust growth outlook for electric vehicles to continue globally. This is driven by growing EV demand coupled with the introduction of EV-dedicated platforms, new EV model launches, expanded production volume, continuous government policy support and new players entering the market.
Growing demand and supply innovations are driving an accelerated transition from conventional cars to EVs globally, and it is not going to be a Tesla-only future. Nasdaq’s research expects strong growth in EV sales in both China and EU, the two largest EV markets.
Global EV Penetration Forecast
Source: Morgan Stanley Research. Data as of February 2021.
EV Growth around the World
Source: EAAM, CAAM, EVinside, Macquarie Research. Data as of December 15, 2020.