Top Electric Vehicle Stocks to Buy Go Well Beyond Tesla

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Posted: Jan 13, 2021 3:08 AM

Top electric vehicle stocks to buy include many others besides soaring Tesla (NASDAQ:TSLA) that lack the industry leader’s name recognition, its uber-entrepreneur Chief Executive Officer Elon Musk and its zooming valuation.

Investors looking to identify the top electric vehicle stocks to buy have an assortment of ways to ride the technological breakthrough that is capturing the interest of consumers in the United States and around the world. The question is whether the current valuation of Tesla and other electric vehicle (EV) stocks is overheated or if improved sales and bottom-line performance simply need to catch up with what the most ardent fans of the clean-energy alternative to conventional internal combustion-engine vehicles forecast.

Tesla backers should be heartened by BoA Global Research raising its forward estimates and its price target to $900 from $500 for the stock on Jan. 11, following rising fourth-quarter deliveries. The 80% boost in BoA’s price objective is partly due to Tesla announcing a $5 billion equity distribution agreement in December to corroborate the investment firm’s view that the EV manufacturer and lithium battery maker would use its stock to raise low-cost equity to fund stepped-up growth. Tesla applied the same strategy to raise $5 billion in low-cost equity last September.

Chart courtesy of www.stockcharts.com

Tesla Headlines Top Electric Vehicle Stocks to Buy

The EV manufacturer’s fourth-quarter 2020 deliveries of 180,750 units brought its total deliveries for last year to 499,550 units, just under the company’s 500,000 target and a bit above analysts’ estimates. A second objective of the strategy is to boost its delivery of vehicles and revenue substantially higher, further cementing Tesla’s perch as the world’s dominant EV builder.

“The automotive industry is on the precipice of a once-in-a-century technology and market revolution,” according to BoA Global Research.

The key themes for the auto industry during 2021 will be characterized by: technological advancements around powertrain, autonomy and connectivity; ongoing company shifts from physical to digital interfaces with consumers; and progress by companies in their critical core operations to future EV business transitions, BoA advised. In hindsight, 2020 became the year of electric vehicles in terms of news and investor hype, amid “hyperbolic runs in EV-centric stocks” such as TSLA jumping 743% and China’s NIO Inc. (NYSE:NIO) rocketing 1,112%, and a plethora of EV-oriented companies gaining funding from public markets via offerings and mergers of Special Purpose Acquisition Companies (SPACs) that raise money without a previously specified use, BoA added.

Slow Penetration of EVs May Curb the Appeal of Top Electric Vehicle Stocks to Buy

Despite the hype across the investment community during the past year, BoA wrote a Jan. 11 research note that stated EVs likely will incur a slow penetration curve globally as cost dynamics, primarily batteries, remain prohibitive for now. In fact, IHS forecasts EV penetration, as a percentage of global production, will reach just 15% by 2027.

As a result, internal combustion-engine (ICE) technology should remain dominant for the foreseeable future, BoA predicted. Nonetheless, 2020-2021 marks a long-awaited inflection point that underscores its potential future growth, BoA added.

Barclays Rates Tesla as Overvalued Among the Top Electric Vehicle Stocks to Buy

Barclays currently rates Tesla as a stock to “underweight” after its share price rocketed past the investment firm’s $230 target to close at $847.44 on Jan. 12. On that basis, the potential downside for new investors in the stock is 72.9%.

However, Barclays acknowledged in a recent research report that Tesla’s share price trend is up with its new production plant buildout now fully funded. Tesla’s rising share price seems likely to persist for the time being, with the company raising more than $12 billion of capital in 2020 to help support future plant openings, Barclays added.

However, Barclays views Tesla as “fundamentally overvalued” as a car company. Indeed, the shares trade at roughly 15x the company’s enterprise value/sales — a financial ratio that compares the total value of a business to its sales.

Tesla’s shares trade well above the comparable multiples of newer EV entrants and, to an even greater extent, above multiples of legacy automakers. Moreover, the push to accelerate vehicle production increases the risk that Tesla will prioritize overall unit sales growth at the expense of average selling price (ASP) and margins, Barclays cautioned.

Deliveries Keep Tesla With the Top Electric Vehicle Stocks to Buy

Tesla’s overall deliveries of 180,570 in fourth-quarter 2020 beat its estimate of 167,412. The outperformance stemmed mainly from Model 3 and Y deliveries of 161,650 vs Barclays’ estimate of 151,832. Model S / X deliveries of 18,920 modestly beat Barclays’ estimate of 15,580.

The boost in deliveries led Barclays to lift its estimates on fourth-quarter 2020 earnings per share (EPS) to $1.00, up from $0.89 and a $0.93 analysts’ consensus estimate.

“With Tesla now able to ramp production and use price to move the metal given the additional capital raised, it takes away much of the downside risk to TSLA,” Barclays opined.

General Motors Is Among Top Electric Vehicle Stocks to Buy

General Motors (NYSE:GM) is another EV manufacturer that investors may want to consider, and it still trades at a modest price-to-earnings (P/E) valuation of 21.44. The EV trend from a fundamental perspective will be shown by the start of several important launch years for new EV models by the incumbent original equipment manufacturers (OEMs), such as Detroit-based General Motors, Volkswagen AG (FRA:VOW), of Wolfsburg, Germany, and BorgWarner Inc. (NYSE:BWA), of Auburn Hills, Michigan. The timeline for new EV launches of the incumbent vehicle manufacturers remains 2022-23 and beyond, BoA concluded.

Chart courtesy of www.stockcharts.com

GM and many of the legacy manufacturers face the challenge of the innovators dilemma, in which incremental growth in their EV businesses increasingly “cannibalizes” their traditional ICE businesses, according to the BoA forecast. For this reason, such companies must effectively manage the transition from their traditional core business to their EV future in fortifying their longer-term positioning. Given competitive moats around automotive manufacturing, brands and sales processes, BoA’s outlook is for most of these companies to remain “very relevant” in the new EV world.

GM plans to invest $27 billion between 2020 and 2025 across both EV and autonomous vehicles (AV) technology, and aims to launch 30 new EVs globally by 2025. Two-thirds of those EVs would be available in North America across its Cadillac, GM, Chevrolet and Buick brands with a goal of selling more than 1 million EVs globally by 2025. GM has also developed its own Ultium battery cells with its partner LG Chem and an electric drive platform, off of which it will launch its EV pipeline, according to BoA.

Pension Fund Chairman Addresses Top Electric Vehicle Stocks to Buy

EV-related stocks did extremely well in 2020 and continued to rise in early 2021, observed Bob Carlson, chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. Such stocks gained a big boost after the special election in Georgia gave the Democrats two additional seats in the U.S. Senate to provide it with a majority when combined with the vote of Vice-President-elect Kamala Harris, who will be able to break any ties in favor of the Democrats. The incoming Biden administration is expected to increase the likelihood of tax credits and other incentives for people to buy EVs, said Carlson, who also heads the Retirement Watch investment newsletter.

“The problem for investors is they’re now buying stocks whose prices have increased by enormous amounts in a short time,” Carlson said. “I’d wait for a correction in the big-name stocks and consider taking some positions in less well-known players. One area to consider is firms focusing on the commercial rather than the consumer market, such as Workhorse (NASDAQ:WKHS), Romeo Power (NYSE:RMO) and Hylion (NYSE:HYLN).”

In addition, Lordstown Motors (NASDAQ:RIDE) is centered on trucks, while other companies, such as Beam Global (NASDAQ:BEEM) and QuantumScape (NYSE:QS), provide infrastructure and components for EVs.

Given the appreciation in EV-related stocks, all of them are “aggressive” right now, Carlson said. “The ones I mentioned haven’t gone up as much, so they’re a little less risky.”

Pension fund Chairman Bob Carlson answers questions from Paul Dykewicz in an interview before COVID-19-related social distancing became the norm.

Money Manager Kramer Tracks Top Electric Vehicle Stocks to Buy

“The electric vehicle industry is one of those themes where we love the momentum but have a hard time with the stocks as anything but a short-term trade,” said Hilary Kramer, host of a national radio program, “Millionaire Maker,” and head of the GameChangers and Value Authority advisory services. “The pivot away from gasoline as primary fuel is revolutionary and it is real. We’re already looking at millions of plug-in cars domestically and in other countries adoption rates have been much faster.”

The challenge is that domestic manufacturers in specific countries are becoming market leaders, exemplified by Nissan (OTC:NSANY), Mitsubishi (OTC:MMTOF) and Toyota (NYSE:TM) in Japan, as well as Li Auto (NYSE:LI) in China, Kramer said. People tend to consider Tesla the EV market leader in the United States and regard Tesla as a homegrown hero, but this is not going to be a winner-take-all car market and overall resistance to plug-in cars is still much too high, Kramer continued.

Chart courtesy of www.stockcharts.com

TSLA’s share price looks like it’s gotten ahead of itself, Kramer said. If everything goes perfectly, the company might earn $9 per share in 2024 and even in the optimum scenarios something closer to $8 is a whole lot more likely, she added.

“Fundamentally oriented investors are being asked to hang around at least three years to get the ‘privilege’ of owning a stock priced at 98X earnings at that point,” Kramers said. “Does that seem high? Maybe the Musk Factor makes it all worthwhile. For us, we’d rather just buy the lithium or even the aluminum that goes into the cars and get much more sustainable numbers on our side. After all, there’s the real question of how far TSLA can stretch its valuations from here. Will the market balk at 150X 2024 earnings? If so, the stock will have trouble clearing $1,300.”

Volatility Accompanies Top Electric Vehicle Stocks to Buy

“We also know how volatile this stock and all EV stocks can get,” Kramer said about Tesla. “There will be dips. Don’t worry. You’ll get a much better price if you’re patient. And if not, there are always those other stocks. We doubled our money on LI a few months ago in IPO Edge. Easy win.”

Columnist Paul Dykewicz interviews money manager Hilary Kramer, whose premium advisory services include IPO Edge, 2-Day TraderTurbo TraderHigh Octane Trader and Inner Circle.

Woods Weighs in on Top Electric Vehicle Stocks to Buy

One sector of the market likely to get federal stimulus and favorable treatment with Democrats taking control of the White House and Congress is electric vehicles, said seasoned stock picker Jim Woods, editor of Successful Investing, Intelligence Report and Bullseye Stock Trader. Woods, who also co-heads the Fast Money Alert trading service, recently opted to recommend one of the fastest-rising stocks in the EV arena to his subscribers in the latest issue of that advisory report.

Paul Dykewicz meets with stock picker Jim Woods prior to the COVID-19 crisis.

Top Electric Vehicle Stocks to Buy Include Blink Charging

Blink Charging Co. (NASDAQ:BLNK), founded in 2006, went public in 2018 and is pursuing a niche for providing EV charging stations, hardware and cloud software, Woods said. Blink, according to recent company data, has a growing registered member base of more than 180,000 and has deployed more than 23,000 EV charging stations throughout the United States, Europe and the Middle East. The company produces revenue by charging EV drivers to power their cars, by selling EV charging hardware, by providing network connectivity, by processing payments for its property partners and from advertising.

Chart courtesy of www.stockcharts.com

As for the fast-money aspect, BLNK has surged 2,200% in the past year, and some 350% during the past three months. Yet the company seems to be just getting revved up as the EV jolt is in its nascence. The stock’s share price jumped further after clean-energy advocate Joe Biden won the presidential election.

Obstacles May Slow Start-Up Electric Vehicle Stocks to Buy

While many EV startups coming to market after Tesla may envision a large addressable market and outsized growth opportunity, most still face significant and “underappreciated” challenges with execution and consumer reception, BoA indicated. Such obstacles include creating a compelling brand and driving order backlog, manufacturing automotive-grade models at scale while still testing up to industry standards, sourcing and managing a supply chain, and building effective distribution, BoA added.

“The production issues that plagued TSLA for years are just one example of the complexities involved in being an automaker, EV or otherwise,” BoA concluded.

A key competitive advantage for newer EV entrants versus the incumbent OEMs and suppliers is “unfettered access” to low-cost capital to fund product development, expansion and other business efforts through the SPAC boom that Tesla tapped for raising capital, according to BoA.  

Top Electric Vehicle Stocks to Buy Stay Hot Despite COVID-19

COVID-19 has not stopped the rise of EV stocks but it has caused severe economic fallout, huge job cuts and reduced near-term demand for vehicles at a time when many people are working from home and driving much less than within the health risks of venturing out into a global pandemic. Even President Trump contracted the virus and entered the hospital between Friday, Oct. 2, and Monday, Oct. 5. The overall weekly hospitalization rate once again has hit a new high in the pandemic, according to the Centers for Disease Control and Prevention (CDC).

COVID-19 cases have totaled 23,369,732 and led to 389,621 deaths in the United States, along with 92,035,548 cases and 1,970,602 deaths worldwide, as of Jan. 13, according to Worldometer.

The top electric vehicle stocks to buy certainly include many enticing equities other than Tesla. Price-conscious investors may want to consider some of the alternative EV investments to avoid the potential risk of buying Tesla after novice investors who trade using the commission-free Robinhood website and similar online services have bid the EV leader’s share price up to levels that could leave it vulnerable for a sizable pullback if production or sales slow.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a  gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others.

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