A popular investment theme since the pandemic has been the electric vehicle (EV) market. You’re here (NASDAQ:TSLA) paved the way for an army of followers to go. Dozens of new entrants have tried, but the field of suitors is shrinking. Today we bring you three EV stocks to buy in this crazy market.
Investor sentiment matters a lot in this sector. Fans of these stocks are passionate about their tickers. I know this first hand from the comment sections in my youtube videos about them. hyliion (NYSE:HYLN) and Lordstown (NASDAQ:TO DRIVE) were two topics that usually sparked heated debate. I used the past tense on purpose just now because the passion subsides. Lately I haven’t received much heat from the negative comments on their cards. The new breed of post-panoramic investors may have finally found their limits. They can now realize that there are laws of physics even on Wall Street and on stocks. Eventually, reality catches up with the hype, no matter how popular the stocks are.
Nicholas (NASDAQ:NKLA) warned us early, but most ignored it and the losses piled up. I’m not picking on these poor stocks, but they serve as an apt example. My investment rules are simple and always involve having current fundamentals. I’d rather study tangible results from financial metrics than believe in a pie-in-the-sky forecast.
That was my main problem with investors betting fortunes on companies that had no sales. I remained consistent with my message to warn investors of the danger of a falling average. It’s a losing habit that can only work with action on a solid foundation. Even then, the results are uncertain at best. Doubling down on a problematic trade only makes your problem worse.
Not all companies looking to capitalize on the electric vehicle revolution are automakers. There’s a sea of other brands looking to break through in one way or another. No, I don’t mean the Fisker (NYSE:FSR) Car ocean brand, but supporting peripheral enterprises. Charging stations are a popular segment as Flash (NASDAQ:BLNK), for example.
The EV opportunity has a long trail ahead of it. The world needs to replace the production of 100 million vehicles per year eventually. Therefore, I can safely assume that the shares of all major current companies will boom enormously. Here are three EV stocks to buy now that are at the top of my list:
Electric vehicle stocks to buy: Tesla (TSLA)
Source: Charts from TradingView
It’s only appropriate to start with the king of electric vehicles and that’s Tesla. The company was close to death just three years ago, if you believed the critics. I am a convert as I also doubted in his early years but avoided shorting him. But once their operating cash flow turned positive, I saw the light.
Now he is master of his destiny and does not need to borrow simply to exist. Since 2019, they have significantly improved their financial metrics. It now generates around $6 billion in cash.
TSLA stock benefited as it hit extreme highs. Since Thanksgiving 2019, TSLA stock has appreciated 2,140%. This stat alone makes it a must-have in the long run. Investors who willfully ignore such success must be allergic to it. Smart money is looking for winners and this one is definitely at the top of that list. If my goal is to eliminate the questions, taking the strongest stocks in the EV company is an easy decision.
Under the leadership of its CEO Elon Musk, Tesla has even carved out a place for itself leading role in the S&P 500. It is now No. 1 on the list of EV stocks to buy and an overall index leader. The chances of it failing from here are slim to none. In fact, traditional automakers will have to learn its tricks, even from an operational standpoint.
For example, TSLA generates $14 billion in gross profit on just $54 billion in revenue. It’s double the rate Ford (NYSE:F) Where General Engines (NYSE:GM) delivered in the last 12 months. Obviously, they will have to find better ways to compete with Tesla.
Source: Charts from TradingView
In my book, Nio ranks second in this race for dominance among EV stocks to buy. Legacy automakers may soon overtake Nio deliveries, but among newer companies, it’s just behind TSLA. Keep in mind that they actually started in 2015 (November 2014) and have kept going at a blistering pace. The company has just announced that it has delivered more than 6,100 vehicles in February. This is an annual rate of over 70,000, GM has a long way to go apparently.
The current financial metrics are already impressive and earn it a spot on the list of EV stocks to buy. The steering runs on all cylinders even though their cars don’t have any. Whatever benefits they had from the government is there in black and white. The company did this by focusing solely on its home market. Even though this is the biggest market of all, imagine what they can do when they expand abroad. There’s no reason they can’t maintain the growth rate as long as the EV market is so big.
There might be logistical hurdles to doing it their current way elsewhere. Their model of having the battery as consumable might not be easy to replicate outside of China.
Electric vehicle stocks to buy: Lucid Motors (LCID)
Source: Charts from TradingView
My third candidate for EV stocks to buy in these turbulent times is actually my least favorite. It’s not that it’s the worst car, in fact, quite the contrary. The experts put forward the most advanced and certainly the prettiest argument. The range they claim is also the longest and would help shoppers overcome other people’s anxiety.
But that’s only part of the problem. The price is too high. So I would like it more if the car had more widespread range. Only the 1 percent can afford this first set of models. Plus, they’re the newest company, so their finances are still not a selling point.
In the long run, I’m confident that Lucid will sell every car they make. And that brings me to the second problem and that is production. Based on their latest update, their production runs are still at square one.
I disagree with the pundits who call it a Tesla killer. It’s not even a fraction of Nio’s size in units. Management announced earnings on Monday and the stock plummeted on the stock. I would ignore the financial metrics as they are still effectively in pre-production mode. But they have cut their production forecast for the year. Investors hated this as the news hit them in their hopium glands.
Wall Street is already on edge, so they won’t tolerate bad news at all. Going into the results, the LCID rose 10% on Monday. But from that high to the low last night, it’s down almost 20%.
So far, not my favorite EV stock to buy in theory. But this is a serious enough drop to warrant considering a long-term starter position. If I already own shares, I do not average out on this point. As with any new trade this quarter, I would suggest investors deploy only partial risk. Leaving room to add later can be the difference between success and failure.
At the date of publication, Nicolas Chahine did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
Nicolas Chahine is the Managing Director of SellSpreads.com.
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