Investing in Electric Vehicle Stocks and Companies
You can’t mention electric vehicles without thinking about the success story of Tesla (TSLA). The company owns more than half of the US electric vehicle (EV) market, and its share price is going through the roof as straight-faced analysts assign it a $6,000 price target. Meanwhile, major automakers are now releasing EVs left and right, and many EV startups are developing their own take on the battery-powered car. While Mr. Musk’s latest social media project may seem like a distraction, Tesla is in no danger of going bankrupt and Twitter will most likely survive, even thrive.
When we looked at the U.S. market for electric vehicles in 2017 we realized that despite great expectations, EV adoption was in its infancy. Only 0.22% of cars on the road were electric and only 0.77% of new cars produced were EVs. Battery electric vehicle adoption has been growing both in the U.S. and globally since then, and we saw an increase of 69% worldwide in 2018 alone. This suggests that we’re likely at the inflection point of what venture capitalists call “hockey stick growth.” The decline of fossil fuels is still far away, but electric vehicle adoption seems to be on the right track.
How to Invest in Electric Vehicles?
Investing in Passenger Car Manufacturers
The global driver of EV adoption is – drumroll – China. Unsurprisingly so, as China has been kicking America’s ass in a fair number of things lately. According to the International Energy Agency, around 45% of electric cars on the road in 2018 were in China – a total of 2.3 million – compared to 39% in 2017. In comparison, Europe accounted for 24% of the global fleet, and the United States 22%. While Western startups work on niche use cases like electric cars with solar panels and luxury iterations of EVs, China has created their own Tesla, a company called BYD Auto.
BYD Auto (1211:HK) is going head-to-head with Tesla in terms of sales and is now the second-largest manufacturer of electric vehicles in the world. According to investment oracle Warren Buffett, “BYD has a shot at becoming the world’s largest automaker, primarily by selling electric cars” – at least that’s what he said prior to purchasing a 10% stake in the company in 2008.
A more recently available Chinese electric vehicle stock is NIO which started trading on the NYSE in September 2018. The automaker continues to invest in expanding its sales network and increasing revenues. NIO is not profitable yet, but the trends are going in the right direction.
Another electric vehicle company – and perhaps one of the biggest – that’s planning to go public is Rivian Automotive, a company that’s manufacturing an electric pickup truck, SUV, and delivery van. Other publicly traded EV companies generating lots of attention are Volvo spinout Polestar (probably one of the better EV stocks out there) and Tesla challenger Lucid. Among those to avoid include Sono Motors and their solar-powered car and REE Automotive Stock: A Modular Electric Vehicle Platform.
Investing in Manufacturers of Electric Buses and Trucks
Passenger cars might get all the publicity, but the number of electric vehicles for heavy duty applications is also growing fast from a low base. China is light years ahead of everyone else in the adoption of e-buses accounting for 98% of the world’s deployed electric city buses. The aforementioned BYD Auto brand is also one of the biggest e-bus manufacturers in the world. (Silicon Valley startup Proterra is perhaps BYD’s closest challenger in this area with buses that can go 1,100 miles on a single charge.) Proterra recently decided to go public via SPAC, something we wrote about in a piece titled Electric Bus Company Proterra Offers Stock to Public. They’re looking a lot better than GreenPower Motor Company Stock for Electric Buses. There’s also Arrival which is working on UPS vans among other things.
Trucking companies are also exploring electric vehicles, but it’s taking a while to find a product fit. In the logistics market, purchasing decisions are almost exclusively rational and based solely on economic considerations. That’s according to a Deloitte 2016 Global Truck study which found that in Germany, the largest European truck market, only about 1% (or 32,500 trucks) had alternative drives at the time (in other words, they weren’t powered by diesel). If alternative drive systems can yield significant economic benefits, adoption seems like a no-brainer for logistics companies.
Besides passenger cars, Tesla is also working on an electric semi truck. So is Nikola (NKLA), a company that’s building trucks that run on fuel cells. Speaking of Nikola, one alternative to battery-powered trucks are ones that run on liquefied natural gas (LNG). Clean Energy Fuels Corp (CLNE) is a pick-and-shovel play on LNG trucking.
Another company called Hyliion has a hybrid electric truck available and is developing a fully electric truck. The company has filed for an IPO and, if successful, it will trade under the ticker HYLN.
While we’re on the topic of semi truck efficiency, another way to make trucks operate more efficiently is by maximizing their utilization. We were shocked to learn that 40% of miles driven by semi drivers are spent hauling empty trucks around. A startup called Convoy aims to mitigate the issue by developing the Uber for trucking.
Lastly, there are some companies that are exploring electrification-as-a-service which we believe is a stopgap solution with some publicly traded pure-plays that were birthed from SPACs and should be avoided.
Investing in Other Electric Vehicles
Electrification is a pervasive trend across all types of transportation. Just look at all the e-scooter sharing startups that are now popping up. There are also many companies building electric motorcycles. Harley Davidson recently pun out their electric motorcycle into a new EV company called LiveWire. At least two companies, Electra Meccanica (SOLO) and Arcimoto (FUV), are manufacturing three-wheelers that you probably wouldn’t want to be seen dead riding. Another listed e-scooter manufacturer is Chinese NIU (NIU), available on the Nasdaq exchange. Then there’s Segway, the vehicle of choice for overweight tourists, that was bought by Chinese competitor Ninebot in 2015. Ninebot decided to retire the iconic Segway PT in July 2020, and will focus on coming up with vehicles that are actually usable.
Fans of real motorcycles are also catered to by a handful of startups that sell bikes in all kinds of iterations. Oregon-based Brammo was looking to IPO in 2013, and then again in 2015, but this never materialized. Across the ocean. New Zealand startup UBC is looking to disrupt the utility vehicle market with its 2×2 vehicles and is currently expanding in the US and Australia. Taiwan’s Gogoro is making battery swapping great, now they need to successfully expand internationally.
There are also startups working on the electrification of ferries and airplanes with backing from some big industry names. Recently, flying taxis have been getting some attention with China’s EHang jumping +1,000% in 30 days leading others to go public. Also called electric vertical take off and landing (eVTOL) vehicles, these are essentially large drones that carry humans and cargo. Other eVTOL stocks we’ve wrote about include Archer Aviation Stock, Blade Air Mobility Stock, and Lilium Stock: An Electric Jet Aviation Company. Lately, we find ourselves asking Will These Six eVTOL Stocks Ever Take Off? Of those, we believe three names represent The Best eVTOL Stocks for Investors to Watch, though we’re suspicious about how economically viable the eVTOL thesis is.
Electrification is all about doing more with clean energy and less with dirty energy, so it’s worth mentioning that a number of startups are developing new iterations of the internal combustion engine. These promise to be smaller, lighter, have better fuel efficiency, and reduce emissions. However, most of these seem like moonshots. For example, a company called Scuderi Group failed to deliver its own version of an efficient internal combustion engine due to management incompetence. Ecomotors met the same fate in 2017.
There’s also this idea of turning gas-powered vehicles into electric vehicles by equipping them with battery packs and a motor for each wheel like the 100 horsepower in-wheel electric motor that Protean built.
Investing in Fuel Cells
One alternative to traditional plug-in electric vehicles is fuel cells which use only green hydrogen and oxygen to generate cheap and clean electricity with the only byproduct being pure water. Unfortunately, the technology hasn’t been able to achieve much traction, something we first noted in a 2015 article titled The Poor Performance of Fuel Cell Stocks. Today, things haven’t improved much, and we suspect hydrogen may never be economically viable for transportation. If you want to read more about fuel cell stocks, check out our recently published Guide to Investing in Fuel Cell Stocks.
Investing in Electric Vehicle Charging
The adoption of electric vehicles was slowed by range anxiety, the fear that the vehicle has insufficient range to reach its destination. The median range for a passenger EV was only 114 miles in 2017 which is good for driving around town, but way less than what you’d be comfortable with on a long trip. Thanks to improved battery technology, 2020 models are now capable of going between 250-390 miles. Companies like Tesla are also looking at how supercapacitors might be used to more quickly charge electric vehicles.
Range anxiety is still an argument against EVs, which is why auto manufacturers like Nissan and Tesla are actively involved in building their own charging networks. When we looked at the state of EV charging networks in 2019, we found that charging stations largely incur losses because EV adoption is at its early stages. In order for more people to drive EVs, the charging infrastructure needs to be in place, so it’s kind of a chicken-and-egg problem. One company that’s charging forward anyway is ChargePoint, the world’s largest charging network, that’s taken in $532 million in funding so far. They’ve now filed for an IPO using a SPAC, but we’re avoiding ChargePoint stock for now because of their low margins and uncertain business model. Instead, check out Tritium Stock: A Global EV Charging Play. Of course, our thesis will evolve as the industry evolves, so we’ll regularly be checking in – like our recent piece on 6 Electric Vehicle Charging Stocks For Green Investors.
Most of the current public EV charging networks are private or owned by carmakers with the exception of Blink (BLNK). Blink wasn’t in the best competitive position at the time of its 2018 IPO. The company used to trade on the OTC market under the name “Car Charging Group”, so uplisting to Nasdaq might give them access to more investors. With private chargers way ahead of public networks, startups working on home charging solutions like WiTricity can capitalize on the trend.
Electric vehicles are not future moonshot technologies like fusion reactors or asteroid mining. EV adoption is growing exponentially, and better battery technology, larger battery packs, and government incentives are all helping EVs to become the new normal. The handful of investment opportunities for retail investors is likely to grow as more companies move to electrify their vehicle fleets. Just be wary. There’s a great deal of hype around many electric vehicle companies, something we covered in our pieces on A Warning About Electric Vehicle Stocks and Is Searching for “The Next Tesla” Pointless? And whatever you do, do not get involved in any crowdfunding / Reg A+ EV projects like Atlis Motor Vehicles or Aptera’s solar cars. This is the stuff institutional investors passed on, and for good reason.
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