One of the best-performing industries of 2020 has been electric vehicles (EV). YTD, the KraneShares Electric Vehicles and Future Mobility ETF (KARS) is up 32.5%, while the S&P 500 has a 6% gain.
EV stocks are being driven higher due to the expected long-term growth in the electric car market. Due to falling costs and better technology, it’s expected that by the end of the decade, EVs will reach the “crossover point” where they will be cheaper than gas-powered vehicles without subsidies.
As a result, the EV market is expected to continue to see massive gains. In 2019, 325,000 EVs were sold in the US. In China, 1.2 million EVs were sold that year, as the government has been very generous in supporting the market. By 2030, it’s expected that 5 million EVs will be sold annually in the US, and in China, close to 12 million.
Another recent catalyst for the EV industry has been expectations of increased stimulus and spending if the election resulted in Joe Biden winning the Presidency and Democrats winning a majority in the Senate. Biden proposed spending of $2 trillion on a climate plan, with some of the money directed towards the funding of charging stations, subsidies, and tax credits for purchases of EVs and a “cash for clunkers” program targeted toward EVs.
Currently, Tesla (TSLA) is the largest EV company by nearly every measure. It has 81% market share in the US, and around 15% globally. Many consider its cars to be of the highest-quality and are even preferred to traditional vehicles. It’s cultivated a strong following and customer loyalty.
The company is also rapidly expanding production and has ambitious plans to roll out new, cheaper cars. It also looks poised to enter adjacent areas like electric trucks, autonomous driving, autonomous driving, and batteries that are synergistic with its business.
So, it’s not surprising that Tesla’s stock has been the strongest-performer in the group. While KARS is up 32.5% YTD, TSLA is 426% higher.
Companies That Could Challenge Tesla
Of course, TSLA’s big gains have also created concerns that the stock is overvalued, its market share will erode as new companies introduce their EVs, and that it will fail to execute and smoothly increase production while maintaining quality.
Another negative, short-term development for TSLA is that it looks like the Democrats failed to retake the Senate in this week’s election. This significantly reduces the chances that Biden’s energy plan will be able to enacted.
The combination of a Biden win and the expectation that the GOP will retain control of the Senate is leading to a strong bid in growth stocks - the PowerShares Nasdaq 100 ETF (QQQ) is up 7% in the last two days. However, TSLA has been underperforming with only a 3% gain in the past couple of days. Typically, TSLA outperforms on days when growth stocks are strong.
Due to this reason and others mentioned above, investors may want to consider some other EV stocks that are not based in the US or are smaller and have more upside potential.
NIO is known as the “Tesla of China,” and it’s earned this moniker with its impressive and popular designs. It’s also following the same path as Tesla by building a cult following with its premium cars. The next step of its plan is to use these proceeds to develop and build lower-priced models.
NIO is also known for its Battery-as-a-Service (BaaS) solution. The Chinese government has also given extraordinary benefits to domestic EV companies as it’s eager to have Chinese companies in the space and to reduce pollution in the longer-term. So far, NIO is up more than 838% year-to-date.
NIO’s recent results have been very impressive. In the last quarter, NIO’s total revenues increased 146.5% to $526.4 million. It delivered 5,055 vehicles in October, a 100.1% jump from last year.
While the EV market in China is quite competitive with legacy companies and startups, NIO is successfully carving out market share and establishing a brand which will translate into pricing power. It already has a long waitlist for new customers.
How does NIO stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
A for Industry Rank
A for Overall POWR Rating
You can’t ask for better. The stock is also ranked #3 out of 115 stocks in the China industry.
Recently, XPEV’s stock has been rising with the other Chinese EV companies. Over the last two weeks, XPEV is up nearly 100%. It will be competing with Tesla in the Chinese market.
XPEV IPO’d in late-August of this year, and it raised $1.5 billion. It’s newest vehicle is the P7, which has drawn comparisons to Tesla’s Model 3 in terms of outwards appearance. However, XPEV is differentiating itself by focusing on comfort over performance. XPEV is targeting customers in more areas with less-developed infrastructure and frequent traffic jams, therefore it believes that a smooth driving experience is more important than horsepower.
XPEV has built its own factory but is also working with a contract manufacturer to meet demand. Currently, they have the capacity to produce 250,000 vehicles per year which is the most in the Chinese EV market. XPEV is also well capitalized, after raising $2 billion in its IPO in August 2020.
HYLN, based in Texas, is competing with TSLA in the electric truck space. This is going to be a massive market within the EV industry, as electric trucks will result in significant cost-savings for operators.
It wasn’t until recently that electric trucks were believed to be a viable option, due to range and power issues. However due to new technological developments, it is now forecast that electric trucks will be on the road by 2030 and will overtake diesel-powered trucks by 2040.
HYLN is developing its own electric powertrain systems to revolutionize the commercial transportation system. HYLN claims that its powertrain system has 2.6 times the range of a Tesla Semi. It also has 23% larger capacity than TSLA. Despite more range and hauling power, its engine weighs less than TSLA’s. Of course, HYLN doesn’t have the same resources as TSLA, so it’s major challenge will be figuring out how to scale production, once it can prove its technology.
TSLA shares fell $0.88 (-0.20%) in after-hours trading Thursday. Year-to-date, TSLA has gained 423.62%, versus a 10.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. As a reporter, he covered the bond market, earnings, and economic data, publishing multiple times a day to readers all over the world. Learn more about Jaimini’s background, along with links to his most recent articles.3 Electric Vehicle Stocks That Will Challenge Tesla's Dominance appeared first on StockNews.com