Electric car stocks and electric vehicle (EV) charging stocks have rebounded from lows, but are still down huge from their highs. Yet just because a stock is down doesn’t necessarily mean it’s cheap.
Let’s take a look at some of the most well-known car manufacturers and charging stocks, such as Rivian Automotive ( RIVN -7.56% ) and ChargePoint holdings ( CHPT -0.91% ) – to determine a good way to approach the industry at this time.
Why are electric vehicle stocks falling?
The electric vehicle industry – and the legacy internal combustion engine (ICE) automotive industry for that matter – has faced a host of supply chain challenges for over a year. But so far, many companies have managed to raise prices.
Kelley’s Blue Book reports that the average price of new cars increased by 14% between December 2020 and December 2021 to reach an average transaction price of $47,077.
However, the problem now is that many companies are trying to secure batteries and chips in addition to basic parts and components as they seek to shift away from ICEs to EVs. Virtually all traditional car manufacturers, from Ford Motor Company ( F -1.54% ) and General Motors (GM -1.78% ) for Toyota and volkswagen, has set itself ambitious targets for electric vehicles. Higher demand makes it harder for pure EV newcomers like Rivian and Lucid Group ( LCID -3.35% ) to source the necessary parts and get vehicles off the assembly line and into the hands of customers. Unlike their traditional counterparts, these newcomers lack the sophisticated supply chain networks and, in many cases, the business relationships and connections needed to deal with a global shortage.
It is difficult for a new and unproven automaker to attract customers, let alone produce and deliver its vehicles, under normal circumstances. Add the challenges mentioned, and this task becomes even more difficult.
As a result, many companies, including Rivian and Lucid, have cut their 2022 production targets. Rivian said it could have produced 50,000 vehicles this year but expects to produce only 25,000 units due to supply chain challenges. Lucid has cut its 2022 shipping forecast by 20,000 units in a range of 12,000 to 14,000 units.
In sum, the whole industry is preparing for a very difficult year 2022, although many companies estimate that the second half of this year will be much easier than the first half.
Aside from Ford and GM, all EV automakers and charging stocks are incredibly expensive by traditional financial measures.
Lucid, Rivian, EVgoand Volta have negligible sales. The cheapest stocks from a price-to-sales (P/S) perspective are Chinese automakers, Nio ( NI 4.18% ) and XPeng ( XPEV 5.80% ). These companies have their fair share of challenges, but they are further along the production track than many American companies. However, the risk of Chinese companies being delisted from US stock exchanges adds an additional layer of uncertainty over Nio and XPeng.
Despite the high price of these companies on paper, you could argue that some of them could increase in valuation over time. Many of these companies are little more than start-ups and need several years to reach profitability. If this happens, the P/S ratios would compress rapidly.
The case of a basket of electric vehicle manufacturers
Given the sell-off in the industry, buying a basket of EV automakers could be as simple as believing in increased EV adoption. Ford and GM benefit from profitable existing businesses that can pass on additional cash flow to fund investment in electric vehicles. Lucid and Rivian have incredibly impressive technology and high demand for their vehicles.
Nio and XPeng have already produced and delivered a significant amount of vehicles, with Nio surpassing the 100,000 production milestone in April 2021 and XPeng following suit in October 2021.
The electric vehicle charging landscape is a little less competitive in my opinion. ChargePoint stands out as having the best management, incredible growth numbers and a winning strategy to capture market share and business growth over time. ChargePoint grew revenue by 65% in fiscal 2022 and guides to 96% year-over-year revenue growth in fiscal year 2023. It also expects it to break even operating cash flow in fiscal year 2025. Unlike automakers, ChargePoint can thrive with general tailwinds in the EV industry and doesn’t really care which automakers come out on top as demand for charging grows.
High risk for potentially high reward
The electric vehicle industry is brimming with potential, but it also comes with its fair share of risk. For this reason, some investors may prefer to wait a few years for some of these potential companies to mature. For people with a higher risk tolerance, adding multiple companies to a diverse EV basket is one of the best ways to limit downside risk in case it doesn’t work out for a few. one of these companies.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.