Lucid is one of the biggest names in EV stocks, but these seven might prove to be better investments
It’s been trading sideways over the past few months, but Lucid Motors (NASDAQ:LCID) stock remains one of the hottest EV stocks among investors. Expectations run high that the company, which plans to roll out its flagship Air luxury EV later this year, will give the incumbent in this space, Tesla (NASDAQ:TSLA) a run for its money.
If you check out the details on Lucid, it’s easy to see why so many investors see this as being the case. For starters, it has a former Tesla exec (Peter Rawlinson) at the helm. Also, it has billions in capital in its war chest, and strong reservation numbers to boot. All in all, it looks to be a winner right out of the gate.
The future may bode well for the company. However, that doesn’t mean its stock is your best opportunity to play the vehicle electrification trend. Priced as if it’s guaranteed to hit its goal of getting to 250,000 annual deliveries within the next five years, LCID stock could fall big if it comes up short of meeting expectations. Some may believe it has a shot of getting back to its $64.86 high. That’s leaps and bounds above the $22 per share it trades for today. But barring a renewal of interest in meme stocks, chances are that’s not going to happen anytime soon.
So, if there is more to sink Lucid shares lower than to send them bouncing back, what are some better opportunities among EV stocks? Consider these seven some of the ones where risk/return is more in your favor:
- BorgWarner (NYSE:BWA)
- Fisker (NYSE:FSR)
- Hyliion Holdings (NYSE:HYLN)
- Li Auto (NASDAQ:LI)
- Magna (NYSE:MGA)
- Microvast (NASDAQ:MVST)
- QuantumScape (NYSE:QS)
EV Stocks to Buy: BorgWarner (BWA)
What makes BorgWarner, one of the “old school” auto parts makers, an EV play? “During a gold rush, buy shovels,” as the old adage goes. That is, instead of taking a gamble on the prospectors (early stage EV makers) in this 21st century “gold rush,” buy the stocks providing services/supplies instead.
As InvestorPlace contributor Larry Ramer explained on July 28, BWA stock could see big upside from the electric vehicle revolution. Right now, the company generates just 3% of its revenues from EV-related sales. But the company is pursuing a strategy that could increase that number to 45% by the start of the next decade.
Better yet, investor skepticism over its EV ambitions have resulted in BorgWarner remaining a cheap stock. Shares today trade for a forward price-to-earnings, or P/E, ratio of only 10x. Admittedly, the company still needs to deliver on its plans. Other auto parts makers betting big on EVs, like Magna (more below) could beat it out for share of this fast growing segment.
But if the company can execute its strategy? Not only could its profitability increase, investors may reward it with a higher earnings multiple. Even as it may take time for this catalyst to pay off, diving into BWA stock now, before it’s “hot” among investors could be a winning way to play this trend.
In my view, Fisker is the Rodney Dangerfield of EV stocks: it gets no respect among investors for its potential. With its smaller market capitalization ($4 billion), and high short interest (22.7% of float sold short), Mr. Market sees this more as another Lordstown Motors (NASDAQ:RIDE) than as another Lucid Motors.
But taking a look at the details, treating this luxury EV maker as an “also ran” with no chance of making it to prime time doesn’t seem appropriate. With its partnership with Magna, along with a strong cash position (bolstered by a recent convertible note offering), it’s far from being in the tough spot Lordstown is in right now.
Even as investors haven’t given it much respect, the sell-side community remains bullish, especially Morgan Stanley’s Adam Jonas. The analyst recently gave shares a “Buy” rating, and a $40 per share price target (FSR stock trades for around $14 per share). Some may not like that this EV upstart isn’t releasing its flagship vehicle, the Ocean SUV, until 2022. Yet Jonas believes this is a reasonable timeline.
Given the market remains cool about electric vehicle SPACs (special purpose acquisition companies), it may not be until the first Fisker Ocean deliveries are made that this stock pops again. But given its big upside if it does deliver? At today’s prices, this may be one of the best opportunities out there among EV stocks.
EV Stocks to Buy: Hyliion Holdings (HYLN)
Admittedly, the market may have been correct in sending HYLN stock from its $58.66 per share high down to the high single-digits ($9.20 at the start of Aug. 25). So far, this EV SPAC has failed to live up to past expectations.
As InvestorPlace‘s Stavros Georgiadis recently pointed out, the company is still in pre-revenue mode. It’s burning through cash at a rapid rate as well. For now, it’s questionable when, if at all, finds a market for its electrified powertrain systems for trucks or for its proposed Hypertruck ERX, which uses renewable natural gas (bio-diesel) to supplement its electric battery.
On the other hand, any sort of progress (i.e., a big order) for either of its products could help renew confidence in its prospects. Add in its potential to get short squeezed (short interest of 18.5%), and this speculative EV stock may have ample room to rebound.
HYLN stock may be the riskiest of the seven EV stocks discussed here. If it continues to flounder, expect a total wipeout of your investment. But if it manages to find a market for its unique internal combustion alternative, shares could be worth many times what they trade for today. If you’re comfortable with this setup, consider this another worthwhile opportunity in this space.
Li Auto (LI)
Companies with exposure to China’s booming EV market have some of the highest growth potential out there. The problem is that everybody knows that, and they’ve priced China EV plays as such. But in the case of Li Auto stock, its current valuation may be reasonable.
How so? Trading at a forward price-to-sales, or P/S, ratio of 5.6x (based on 2022 projections), LI stock is much cheaper than peers like Nio (NYSE:NIO), which trades for around 6.7x its estimated 2022 sales. Or Xpeng (NYSE:XPEV), which trades for around 7.4x estimated 2022 sales.
Sure, although its trading at a discount to comparable plays, 5.6x sales multiple isn’t exactly value stock territory. You’re still paying up for high expected growth. But like its rivals, high growth is on the menu with Li Auto. As a Seeking Alpha commentator recently broke it down, the company has seen an incredible ramp-up in deliveries over the past few months (over 8,500 in July, versus 2,300 in March).
Not only that, with the $1.5 billion raised from its Hong Kong secondary listing, it has plenty of capital to expand further, whether that’s expanding as in increasing its vehicle lineup or expanding as in going international, like Nio and Xpeng have started to do. Offering up the same potential as its peers, at a more reasonable valuation, LI stock is another EV play that may be a better opportunity than LCID stock.
EV Stocks to Buy: Magna (MGA)
BorgWarner may be just getting started building up its EV auto parts business, but Magna’s been the first mover in this area. That’s not just in parts, as seen in deals such as its electric powertrain joint venture with South Korea-based LG Electronics.
The company has also agreed to provide contract manufacturing services for EV startups like Canoo (NASDAQ:GOEV) and Fisker as well. Along with expanding its EV exposure, the company has been looking to expand its presence in other trending areas in the automotive sector.
Its plans to buy advanced driver assistance system developer Veoneer (NYSE:VNE) may have been stymied. Qualcomm (NASDAQ:QCOM) has made a higher offer for that company. But if it was willing to pay billions for Veoneer, chances are it’ll be willing to cut other checks to continue turning itself into one of the more cutting edge auto parts purveyors out there.
After zooming from less than $50 per share at the start of the 2020 “EV bubble” to as much as $104.28 per share, investors have been bailing out of MGA stock, sending it to around $80 per share. But like BorgWarner, it’s trading for a very low valuation (forward P/E of 11.9x) at today’s levels. Already discounted, downside risk may be minimal, while at the same time any success with its EV endeavors may be enough to send it not only back to its highs, but to prices well above $100 per share.
We’ve looked at several EV makers and EV parts makers. Now, let’s look at a company looking to profit from soaring demand for electric vehicle batteries. Like other names in this space that went public the SPAC route, investors have soured on MVST stock. Shares have fallen below their $10 per share offering price, and started Aug. 25 at only $9.16.
For comparison, the stock traded for prices topping $25 per share during the time between its merger announcement and its deSPACing in July. Yes, sentiment about it has clearly changed. However, the company’s prospects may be still as strong as they were earlier this year.
Why? Unlike some other early stage battery makers, which are fighting for a piece of the passenger vehicle battery market, Microvast instead is focusing on the commercial vehicle market. As a result, it’s already locked down deals with leading companies in this area, including Oshkosh (NYSE:OSK).
With it already laying down the groundwork, the upstart may be set to scale up as projected. The road to payoff may still be long. Even so, this may wind up being a much better high-risk/high-possible return play for your portfolio than Lucid.
EV Stocks to Buy: Quantumscape (QS)
Like Microvast, Quantumscape is another EV battery play. It’s also another name in this space where big success is still several years away. The company, which is developing a solid state battery (SSB) that could supplant lithium ion batteries as the predominant power source for electric vehicles, has seen its shares continue to slide lower.
This is somewhat understandable. Even as it has a partnership deal with Volkswagen (OTCMKTS:VWAGY), which may mean a clear path to commercialization, its technology is still in development. Impatient traders have little reason to send QS stock (at around $20 per share) back up to $30 or $40 per share, much less send it back to its high of $132.73 per share.
It may have little room to run in the near-term. But don’t count it out as one of the better EV stocks to buy instead of LCID stock. Why? As I recently wrote, this is a name that could still pay off big in the long run. Once it’s technology is ready, the company could see its sales skyrocket to $6.5 billion by 2028.
Catalysts for some of the stocks mentioned above could happen sooner than the main catalyst for QS stock. Keep that in mind, as there’s less of a need to rush into this particular play. Yet given its long-term potential, it’s certainly a name to keep on your radar.
Note: This article originally appeared at InvestorPlace.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.