The tide has definitely turned. Over the 18 months, savvy investors have flocked to electric vehicle stocks in hopes of getting in on the ground floor, and the strategy has paid off. Household names like Tesla and Nio have exploded recently with the former observing a surge in its share price of over 700% in 2020. The appeal of EVs continues to grow, and the market becomes more ingrained in the cultural zeitgeist, prompting a shift in mindset, and it could all be for the better.
“We’re starting to see the world transition towards a greener way of living. Many countries obviously plan to cut the number of combustion engines down very heavily over the next decade, but it’s not just EV in the sense, it’s everything in terms of climate” Josh Gilbert, finance expert and market analyst for global multi-asset investment platform eToro tells Man of Many.
“There’s a huge shift towards climate change adoption and, we’re seeing investors move towards stocks with a longer-term outlook. Right now, you’re not investing into something like Tesla to see every vehicle on the road tomorrow electric, but instead, investors believe that the future will be electric.”
The Roadmap to Electric
For those who have kept a keen eye on EV stocks, the shift in ideals has been a long time coming. When Tesla Inc released its first car back in 2008, no one fully realised how popular electric vehicles would become just over a decade later. In 2019, EV sales crossed the 2.1 million mark globally, which surpassed the sales in 2018, according to the International Energy Agency, but further integration is predicted. International automotive marquees, such as Lamborghini and Ferrari have announced plans to go electric in the future, which Gilbert says demonstrates the validity of the market.
“Everybody wants a piece of that pie, but the biggest shift will be with names like Volkswagen that have brand recognition. They’re the biggest seller of automaker vehicles in Europe, and for standard EV makers such as Tesla or Nio, competing is going to be really difficult,” he says. “The manufacturers with high-quality vehicles will stand out and those traditional names will have a slight leg up due to that brand recognition.”
Bumps in the Road
Despite the rise in EV stock investing, in recent times, it hasn’t been an easy road. Even the best Ev stocks have been subject to external factors, such as the global pandemic and a worldwide chip shortage, however, the industry has continued to surge.
“We’ve had a chip shortage this year across the globe which has affected a lot of manufacturers. For example, Ford had to actually shut down plants in the US this year,” Gilbert says. “Right now what’s key is the deliveries of these vehicles and manufacturing capabilities. It comes down to what business is investing heavily into growth.”
Approaching it from a different lens, Gilbert explains that the market views brands like Tesla and Nio as more than just auto-manufacturers. The big players in the EV space operate as technology companies, helping to steer the dialogue around innovation and as a result, their value is underpinned by growth.
“When we look at Tesla in terms of where they are now, they’re still returning a profit but their growth and what they’re doing in other markets is huge. They’ve just launched a massive factory in Texas, another huge factory in Berlin and they’re also growing in Shanghai,” Gilbert says. “They’re delivering profits, delivering record numbers whilst at the same time increasing their manufacturing capabilities which is obviously costing them billions of dollars to grow. I think what you want to ensure is that those vehicle deliveries are climbing in the biggest regions like Europe and China.”
The investing expert reveals that one of the major factors dictating the best EV stocks to buy is the development and implementation of government incentives for EV adoption. The Paris Climate Agreement saw a number of forward-thinking countries outline ambitious targets to reduce emissions, prompting further legislative footholds, particularly amongst traditional progressive governments such as Norway, which is looking to go completely electric by 2025. Down Under, Gilbert suggests a similar shift is coming, but it might take a little while longer.
“Australia has historically always started behind other areas like the US and Europe, which was the biggest region for EV sales last year, but we’re slowly catching up and it’s certainly attracting more consumers towards EVs,” he says. “We still have elements of EVs that aren’t completely sustainable, such as having to stop every 300 kilometres or miles, particularly here in Australia. We’ve obviously got a lot of land to cover with trucks, lorries, things like that, but the interest is there.”
It comes as recent stamp duty and tax exemptions are observed across the globe. “At the moment, there’s not a lot here in Australia, but there is still a case to be made here in Australia that you can save thousands of dollars for buying an electric vehicle,” the finance expert says. “That will continue to play a huge part and we will see the Australian government move towards adoption as a strategy. Joe Biden in the US has already pledged to make all the government vehicles electric. We’re going to continue to see more and more of that moving forward.”
Top EV Stocks in 2021
With the market expected to grow exponentially in the coming years, EV stocks continue to grow in interest, both here in Australia and overseas. The established players certainly have the upper hand, but there are ground-floor opportunities for investors looking to bolster the portfolio. Here are the EV stocks that eToro market analyst Josh Gilbert notes as the most widely traded.
Often talked-about and widely traded, Tesla is a leader in the EV space and for good reason. The monster jump in stock price has plateaued now, which Gilbert puts down to a maturation of the market.
“We’ve seen a lot of conversation about Tesla’s valuation, because it was very, very lofty but it’s a long-term investment,” Gilbert says. “With something like a growth or tech stock, you’re not buying the stock because like you say, you expect every EV to be on the road, it’s that future growth and that’s what investors are looking for.”
That being said, Tesla, and to a lesser extent, Nio have dominated EV stock trading over the past 18 months and this is likely to continue, even as investors move towards traditional names such as Ford and Volkswagen. With the long-awaited CyberTruck expected to land in 2022, Tesla could be on the precipice of another solid period.
NIO Inc. is a NASDAQ-listed EV designer and manufacturer of smart electric vehicles in China, Hong Kong, the US, the UK, and Germany. Already a major player in Asia, the company bolstered its reputation in June, when it announced that it had received European Whole Vehicle Type Approval for its ES8 model. This approval means the company can now enter into the European market and mass-produce and sell its vehicles.
“One reason why Nio was so big for investors in the beginning was that they were backed by the Chinese government, for around a billion dollars ,” Gilbert says. “They had cash to go out and do what they wanted to do, grow into Europe, opened up stores across China.”
Despite being yet to report a profit, Chinese-based EV technology company XPeng continues to generate interest. “XPeng is certainly in there as one of the top most popular EV stocks currently,” Gilbert says. “Xpeng actually delivered more vehicles than Nio in July which was a bit of a surprise for Nio investors. It’s a name that we’ve seen crop up quite a lot and its rollout in Europe is ahead of Nio right now.”
After its launch in early 2020, XPeng’s P7 sports sedan quickly reached a total of 20,000 deliveries, surpassing the G3 compact SUV as the firm’s most popular vehicle. The success saw XPeng become the fastest vehicle to reach 20,000 deliveries of any Chinese EV startup, however, the stock has flattened in recent times. XPeng stock has dropped 4% in 2021 as volatility remains a point of contention for investors.
4. Li Auto
A smaller player on the EV market, Li Auto has seen a rise in interest over the last year. The firm recently reported a mixed result, announcing that while shares gained 2.9%, operating losses during the second quarter were up 107% year-on-year. Gilbert explains that results like this demonstrate the importance of growth investment, as seen with Tesla and Nio. “Names like XPeng and Li Auto are a little bit more cash strapped when compared to something like Nio,” he says.
Guide to Investing in EV Stocks
Outside of simply understanding regulatory impacts and the wider protocol, EV stocks represent a unique investment opportunity. However, unlike stepping into an IPO or following the market, EV stocks have some specific requirements that must be identified. Here, Gilbert provides the most important aspects to consider before investing in an EV stock.
- Cash – Cash is really important to be able to really dominate. It provides the avenue to grow, invest in technology and reach new markets.
- Growth Investment – It’s that future growth and that’s what investors are looking for. For something like Tesla, the business is fundamentally strong and they are a clear leader in the EV market. They’re profitable, but for a long time they weren’t necessarily making a profit from their vehicles, but gross margins are continuing to increase.
- Pathway to Profitability – Have a clear pathway for future sales and of course profitability. When you look at Nio and those other names, they’re still yet to be profitable. You have to have that pathway to profitability in the future.
- Consumer Interest – If lots of people are saying the car is ugly or they don’t like it or there’s something going wrong with it, it’s probably not a good reason to buy it. You want to have good consumer interest behind it. Everyone I speak to loves Teslas, they’re like spaceships and things like that. They have that brand recognition there and I think that’s really important.
- Avoid Relying on Recognition – Don’t simply invest into a brand because you know the name or because you’ve heard of it. Focus on the standard business fundamentals.
When it comes to investing in EV stocks, Gilbert’s ethos is simple – plan for the future. The eToro market analyst reaffirms that the market is still in a development stage, meaning those who invest, should be in for the long haul. However, if you do your research and assess the market, the blue ocean opportunities are there.
“That transition towards EV will obviously be the biggest in terms of the uptake and how quickly that happens,” he says. “Consumers have a much higher social and environmental conscience now, than we’ve ever seen before. That’s why EVs are more relevant than ever. We note more and more electric vehicle sales every year and even throughout the pandemic, we’ve reached new record highs for sales. It’s not just going to be dominated by one company. There’s a huge market available.”
Are EV stocks a good investment?
Companies with strong track records of earnings growth and market outperformance that are forming bullish chart patterns are the best candidates for stocks to buy and watch, according to CAN SLIM guidelines. With this in mind, staying on top of current legislation movements and government incentives for increased EV car integration, as well as wider technology innovation, will lead to market uptick, according to eToro market analyst Josh Gilbert.
What are the best EV stocks to buy?
Based on market performance, the largest and most widely-traded EV stocks include Tesla, Nio, XPeng, Li Auto, Electrameccanica Vehicles and Arcimoto.