It’s not often that you see an entire industry be disrupted in just one fell swoop, but that is precisely what has happened to the car industry. The electrification of enterprise fleets and consumer cars, and the desire by most nations to lower their carbon footprints and stop climate change quickly, mean that we are witnessing the start of what might be a multidecade car replacement cycle.
According to a survey that was conducted late last year, the avg. forecast of over 1,000 global auto leaders was for the global EV sales to be around 50% of all cars sold by year 2030. Meanwhile, a Nov. report calls for the electric vehicle industry to reach $957 billion in market value by year 2030, which is over four times its value at the end of year 2021.
Although investing in electric vehicle growth seems like a no-brainer buying opportunity, not all stocks that are associated with EVs will be winners. While I think one name should be bought now, there is one EV stock that you should avoid like the plague.
The first EV stock you should avoid: Rivian Automotive
At first glance, Rivian Automotive, which was one of the hottest public offerings in 2021, seems like it has the tools it needs to be successful. The company will provide three differentiated cars — the EDV electric van, the R1T pickup truck and the R1S SUV– with planned yearly capacity that ranges from 200,000 cars at its Illinois plant to around 400,000 at its Georgia factory.
Amazon has ordered around 100,000 EDVs from Rivian, which it had received in year 2019. The sheer size of that order has validated the company as a major player of interest in the electric vehicle space for years.
But the flipside of Rivian is that it is still very new. The company had made only 1,015 electric vehicles in 2021 and it had its IPO with zero trailing-1 year sales. It has missed an already very low production bar for year 2021, and will likely have to deal with similar supply chain issues affecting the whole industry. In other words, the company’s trajectory is bound to hit many speed bumps. It is par for the course when creating an EV company from scratch.
Making matters even worse, Rivian has found itself in some trouble after announcing, then having walked back (for people who ordered prior to March 1), a price increase of $12,000 it put on its quad-motor models. Increased material costs have forced automakers to increase prices. While Rivian was just following the other companies in the sector, a $12,000 price increase on cars that already have a price tag of $70,000 did not sit well with its customers. If the company isn’t careful, it might price customers out of purchasing its vehicles.
While Rivian might eventually grow into a company that is investment-worthy in the electric vehicle space, it has a small amount business that is valued at around $45 billion.
The EV stock you should buy: Nio
On the other end of that spectrum is Nio, which has checked all the right boxes and could be purchased hand over fist after its recent pullback.
However, the management team has really done a great job with its ability to increase production in an environment that has been challenging. Though the New Chinese Year held back its production in Feb., and supply chain problems curbed output in Jan., Nio managed to hit 10,000 deliveries in both Nov. and Dec. Management has also offered guidance indicating that the company could hit 50,000 monthly deliveries by the end of 2022. This would work out to a yearly run-rate of about 600,000 electric vehicles.
It’s expected that Nio will have recurring profitability in 2023, and the company is valued at just over seven times expected earnings each share in year 2024, it seems like a screaming buy.