Electric vehicles (EV) are a hot investment topic these days. Not so much because they make up a significant proportion of auto sales, but rather because prices of EV-related stocks skyrocket due to future speculation.
President Joe Biden said he wanted the entire federal vehicle fleet to be replaced with electric vehicles. Such an action will be expensive and unlikely to happen quickly, but it is significant news. This is on top of recent government bans in parts of the European Union and elsewhere on banning the sale of gas-powered vehicles at some point over the next 10 to 15 years.
All of these moves are creating additional buzz in the EV investment sector right now, and EV stocks are rising. Tesla (NASDAQ: TSLA) In the last 12 months alone, the stock rose by around 350%. Even a seasoned automaker General Motors‘ (NYSE: GM) The stock is also getting an EV boost, reaching an all-time high compared to their bankruptcy protection filed in 2009.
It’s been difficult for investors to ignore this industry due to the recent spike in prices for EV-related stocks. But which EV stocks are actually solid long-term investments? Some would tell you to go with the young upstart. But I think the benefit – and the value – actually lies in the stocks of traditional automakers.
Four EV-only games that could be appealing
Without a doubt, Tesla, currently the best-known EV inventory, is also the most profitable financially. It has updated products and lots of sales. Tesla reported full-year 2020 sales of $ 31.5 billion. According to generally recognized accounting principles (GAAP) Tesla reported earnings of $ 0.64 per diluted share for 2020, which translates to a trailing 12-month P / E of 1,275 times earnings. Tesla shares have a market capitalization of around $ 783 billion. Tesla shares appear to be permanently valued based on future speculation. Estimates of $ 4 per share in 2021 would give the stock a forward P / E ratio of roughly 212 times its earnings potential.
What made investors so in love with Tesla? The obvious pull here is the company’s manufacturing lead over other up-and-coming competitors.
Lordstown Motors (NASDAQ: RIDE) reached its EV popularity for one main reason: a focus on truck manufacturing. Pickup trucks are the most popular sales segment in the auto industry, which makes Lordstown Motors an interesting option. Lordstown is initially focusing on commercial sales, which makes sense as it allows “fleet” deals to be made for a large number of vehicles. By concentrating production at a former General Motors Ohio facility, Lordstown can capitalize on Biden’s goal of building the government’s American-built EV fleet.
But Lordstown Motors hasn’t sold any trucks yet. It currently only has a business plan and a market cap of around $ 4.4 billion. As of September, the company announced that full production would not begin until 2022. As of January 21, Lordstown had non-binding reservations for approximately 100,000 electric vehicles, but no confirmed sales. With an endurance pickup price of around $ 45,000 after a federal EV discount (total base price of $ 52,500), the company has potential sales of $ 5.25 billion for no-obligation orders to date. This suggests that Lordstown stock is currently trading at a discount to future sales (as long as those 100,000 reservations are met).
Another EV company to consider is Lucid Motors. Investors have invested a lot of money Churchill Capital IV (NYSE: CCIV) on a rumor that this SPAC could merge with Lucid. Lucid Motors also has no sales right now (the Lucid Air is expected to hit the market in the spring) but is fascinating because of its ties to Tesla. Lucid’s CEO is Peter Rawlinson, a former chief engineer on the Tesla Model S. Lucid is a highly speculative investment as the craze for it stems from automotive engineering (Lucid claims a range of over 500 miles per charge).
My favorite EV-only game is one that you can’t even buy. Privately owned Rivian has designed two “adventure vehicles” that are attractive to consumers. Rivian has what I consider to be the EV equivalent with their R1T pickup and R1S SUV Stellantisis Jeep brand and should appeal to outdoor enthusiasts with an environmental concern and financial means.
Rivian is rumored to go public this year with a valuation of $ 50 billion. This valuation seems highly speculative, even if Rivian has some appealing traits. Rivian has financial ties and support from Amazon and Ford engine (NYSE: F.). In addition to its sport utility vehicles, Rivian makes electric vehicles for Amazon’s shipping requirements. These order reservations have gone further than some other EV manufacturers.
Tesla is the most recognizable EV name among these four pure games, but Rivian is probably the best bet for investors. Its products are closest to what the American consumer wants, and his dealings with Amazon make them an extremely reliable customer.
One argument in favor of traditional automakers is the best EV investments
While investors seem hot for the EV-only makers, they are ignoring the fact that big automakers are going nowhere. Even traditional vehicles (at least not for some time).
The big auto companies are all working on their own electric vehicles and their traditional vehicles. For example, GM and Ford have the infrastructure and industry expertise to currently manufacture electric vehicles. They continue to control the traditional gas-powered car market, providing investors with the best of all worlds for a fraction of the share price. General Motors trades at 12x profit and Volkswagen (OTC: VWAGY) with almost 20 times the income.
Electric vehicles haven’t really changed consumer demand for cars yet. Names like Ford, General Motors or Toyota (NYSE: TM) still control the auto industry. You have the dealer network that is required for maintenance and repair as well as for sales. Her move to electric vehicles will likely help maintain her current leadership positions.
Ford’s electric F-150 is expected in 2023. The price is estimated at around $ 70,000. As the best-selling pickup of all time, any EV edition of an F-150 is a tough contender. General Motors has its new electric Hummer, which is said to have a range of over 350 miles and can reach 100 miles of chargeability in 10 minutes. This Hummer EV (slated for release this fall) is the main competitor to Rivian’s lineup.
The Porsche brand from Volkswagen is targeting the upcoming Lucid Motors Lucid Air and the high-end Tesla models with their Porsche Taycan. The car has a poor range of under 250 miles, but Volkswagen will continue to push the tech here.
Anyone who thinks that all of these companies will simply disappear is naive. Tesla and Lucid Motors won’t replace them BMW (OTC: BAMXF) and Daimler (OTC: DMLR.Y). These companies will bring together a number of internal combustion engines and electric cars and will continue to be major players in the automotive industry.
Increased competition will change history
For investors focused on short-term returns, EV startups are more attractive than a stock like General Motors. However, if you’re more interested in the wider EV industry dynamics, there is plenty of potential in traditional names. As the involvement of traditional automakers increases, the consumer segment will receive ever more EV options. As a result, every automaker will face more intense competition for market share. In that case, would you like to invest in companies that trade 20 times their actual turnover?
When investingRemember, these EV-only companies are competing for market share that the larger companies already control. General Motors’ recently pledged EV investment strongly suggests that the big guys won’t be giving it up that easily.