Thematic investing: electric vehicles

Equities
Investments

Electric vehicles are gaining traction among car owners, legislators, and fleet operators worldwide. Can the same be said for investors? In our latest thematic investing guide, the spotlight turns to EV stocks. 

EV stocks & why you should consider them 

Goodbye ICE. Hello EVs 

More and more EVs are appearing on the world’s roads. Drivers have long enjoyed the freedom of movement afforded to us by Nicolaus Otto’s people-empowering invention but the internal combustion engine’s days are numbered.  

The environmental cost of fossil-fuel-powered engines is getting heavier. Slowly, but surely, the chug of a diesel engine or the throaty roar of a high-powered V8 will disappear from our roads. 

The changeover may be coming even faster than that. Reports indicate the EU will move to ban sales of new ICE vehicles as early as 2025. The UK has brought its ban forward to 2030. The book is closing on petrol and diesel. The next chapter begins with lithium-ion battery-powered machines. 

Proliferation is not total. ICE still dominate everyday driving, but EVs sales continue to grow year-on-year, quarter-on-quarter.  

More pure EVs and plug-in hybrid models are on the roads in key automotive markets. 245,000 fully electric models, plus 515,000 hybrid vehicles, were registered in the UK by the end of April 2021, for instance, representing just over 13% of all registered vehicles. 

In China, pure battery-powered car sales were up 113% in Q1 2021, with 333% more hybrids being sold in the same period. Overall EV sales in the US in the first quarter of 2021 shot up 81% too. The appetite for electric power is spreading among vehicle owners.  

Tesla is arguably the most visible electric vehicle brand. Its optics are massive, especially with relentlessly self-publicising CEO Elon Musk in the driver’s seat. That said, the race is on to develop hybrid and electric vehicles by legacy marques, as well as new badges hoping to overtake Tesla. 

It was Toyota that really got the hybrid trend rolling with its iconic Prius model, launched for worldwide sales in 2002. Now, all the major marques have at least one hybrid model in their range or adding one. 

Even luxury brands like Aston Martin are in the act. The “big three” of hypercars, the Porsche 908, Ferrari La Ferrari and McClaren P1, are all hybrid-drive vehicles for example. 

Ford has even transferred its iconic Mustang name to a new electric model, launched in 2020. Renault has plans to resurrect its cheeky-but-charming 5 as a full EV too. VW is planning for its ID range of four electric models will be the core of its range as it pivots towards full electrification.  

The list of car manufacturers making the jump to electric power is extensive, but here are some stocks below to keep an eye on. 

EV stocks to watch 

Tesla 

Beginning with the biggest name in EVs, Tesla shares have been a bit of a journey across the year so far.  

The Elon Musk-controlled marque was soaring, closing January 2021 at $883 – an all-time high.  

Now, a combination of concerns over criticisms from the Chinese market, fatal accidents caused by Tesla’s autopilot system, rising competition, and questions over the brand’s acquisition of $1.5bn worth of Bitcoin cryptocurrency, has caused Tesla’s share price to drop. As of May 21st, Tesla stock was trading at around $593.50. 

Despite this, Tesla increased vehicle deliveries in Q1 2021. Net income hit $438 million during the quarter. Earnings of 93 cents per share on $10.39 billion in revenue.  

New Tesla models are on their way. An updated version of the flagship Model S sedan is coming soon. The Model X SUV will start rollout in Q3 2021. It has also weathered the EV chip shortage by pivoting to new suppliers, meaning manufacturing can continue relatively undisturbed. 

However, if you are considering investing in Tesla stocks, make sure to do your research. Michael Burry, the hedge fund guru who gained fame for exploiting the 2008 Financial Crisis, is shorting $534m worth of Tesla shares, indicating he thinks further stock price declines are on their way. 

A bumpy ride may be ahead for Tesla – but its major brand recognition and positive financial outlook may help steer it back on a growth footing in 2021. 

NIO 

Nio is not the largest Chinese electric automaker, but it is making big waves.  

Q1 2021 saw NIO deliver just over 20,000 vehicles – a more than 400% y-o-y increase. NIO has already delivered about 95,000 vehicles in total in the year so far. It is leading the way in China’s electric SUV market too, selling slightly more than 7,100 in April, outpacing Tesla. 

In terms of prices, NIO shares are showing similar volatility to Tesla. Since the start of 2021, NIO stock is down 37.5%. Year-to-date, however, NIO share price has soared 870%. Market cap stands at around $55bn. Currently, NIO stocks are trading at around $34.50. 

So where next for NIO? It’s already showing impressive sales growth figures. China is already the largest auto market in the world. It’s forecast to become the largest EV market too, accounting for 40% of the 31.1m global EV sales Deloitte predicts for 2030.  

For NIO, being a native Chinese brand is a huge advantage here. It is protected by domestic laws favouring homegrown brands over foreign marques like rival Tesla. It already holds 23% of the electric SUV segment too. If it can maintain deliveries, NIO and its shares may look very positive in the future.  

Volkswagen 

The above EV stocks are manufacturers that deal exclusively in pure electric, battery-driven vehicles. Volkswagen is a legacy marque. While it has made substantial headway in introducing its ID range of electric cars, it is still a manufacturer of ICE-powered machines. 

That said, it has an aggressive electrification plan in place. A new factory has been built dedicated solely to EV production at its Wolfsburg campus. It’s even pushing for one million EV sales by the end of 2021, with the ID.4 model identified as VW’s electric golden goose. 

VW shares were up 62.3% from the start of 2021 to the beginning of April, reaching $258. As of May 21st, the share price had grown further with VW shares changing hands for $272. Optimistic electric vehicle sales are potentially powering this growth. VW may be on course to outsell Tesla in 2022 if it can maintain successful sales. 

Here’s the rub. While Tesla had an enormous head start over legacy manufacturers, once the full weight of Toyota, VW, GM, Ford and so on is turned towards non-ICE cars, it will be difficult to match their potential output. These are companies with already massive manufacturing capabilities and the capital to invest in new factories and product lines as we’ve already seen. Therefore, don’t think of single-play manufacturers when looking at EV stocks. Remember established automakers too. 

Risks in investing & trading EV stocks 

Whether a newer brand or a legacy marque, always remember trading EV stocks comes with inherent risks. Market volatility has been seen in the electric vehicle space. While profits can be made, you can also lose money. Always do your research and only invest or trade if you are comfortable taking any potential losses.