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Key Points About This Article:
- The EV industry is slowly gaining momentum and an interest rate cut could lead to an improved consumer spending and higher EV demand.
- Li Auto, Tesla and BYD Company are EV industry leaders with an expanding market share.
- If you’re looking for stocks with a high upside potential, get your hands on a free copy of the brand-new “The Next NVIDIA” report . We've carefully picked stocks that can outperform the market.
The transition towards an electric future is here to stay and the electric vehicle megatrend is gaining traction again. After a slump in the EV industry in 2023, the sector is finally picking up. While some of the biggest EV stocks are still trading low, now is the time to swoop in and get in on a discount. High interest rates and the fear of a recession softened the demand for EVs and consumers straightaway cut down on the big-ticket purchases, leading to a slump in EV sales. However, it is too soon to write off the EV industry.
The world will certainly move towards electrification and despite a drop in demand, the United States saw a record-high EV sales volume of 330,463 units in the second quarter. This could be due to price cuts and higher discounts but the sales managed to exceed expectations in the quarter. If you believe in the future of EVs and want a bite of this growing industry, here are three EV stocks you should bet on.
Li Auto (LI)
Chinese EV maker Li Auto ( NASDAQ: LI ) has managed to impress investors with strong delivery numbers and impressive fundamentals. However, like the other EV companies, Li Auto hasn’t had it easy. The company was enjoying some of its best days in the industry when inflation peaked and the demand dropped. Li Auto touched the highs of $46 in February this year but has lost most of its value and is down to $19 today. It is down 43% year-to-date and 48% over the past six months.
In August, the company delivered 48,122 cars , a 5% drop from July but a 37% jump year-over-year. So far this year, the company has reported deliveries of 288,103 vehicles, up 38.4% YOY. The company’s least expensive model Li L6 is high in demand and generates the maximum sales. It reported more than 20,000 deliveries of the model for the third consecutive month. Despite the month-over-month drop in deliveries, they remain at an all-time high.
The company’s second-quarter results disappointed investors but it managed to meet analyst estimates for revenue. Its revenue came in at $4.4 billion, up 10.6% YOY, and the gross profit stood at $850 million, a dip of 0.9% YOY. It reported a healthy vehicle margin of 18.7% and if it sustains at the same level, we could see healthy business growth.
Citigroup analyst Jeff Chung has a buy recommendation for the stock with a price target of $26.20. The analyst thinks the EV maker is a first mover in the segment and enjoys an advantage in the home market. I expect the coming quarters to be good for the company and with a rate cut, we could see Li Auto enjoying higher demand.
BYD Company (BYDDF)
One of the hottest EV players, BYD Company ( OCTMKTS:BYDDF ) is gaining traction for its hybrid-powered cars. It managed to report a total sales of 340,799 passenger cars in July which is 60% more than the plug-in hybrids. Its hybrid segment saw a 44% YOY jump in sales and a 14% jump in battery-only sales. Several catalysts are working in favor of BYD Company.
The company reported solid second-quarter results with a 26% jump in revenue and a 20% jump in net profit, meeting expectations. Despite challenging market conditions, BYD continues to expand its market share. Its export business accounts for 14% of the sales, showing a high expansion potential. The company has signed a $1 billion deal to build a new factory in Turkey where it aims to produce 150,000 vehicles each year.
BYD Company sets itself apart with its global presence and strong export demand. The company adhered to price cuts earlier in the year but the gross margin remained stable. When compared to peers, BYD has outperformed with better cost management. I believe the company will be able to meet the 500,000 global sales target since it has already hit 270,000.
BYD has partnered with Uber Technologies ( NYSE:UBER ) to bring 100,000 EVs to its platform in Latin America and Europe. A pure play in the EV industry and one of the most promising stocks, BYDDF is exchanging hands for $30. It is up 13% YTD and investors are willing to pay a premium. I believe the stock is a buy below $50.
Tesla (TSLA)
It is hard to imagine an EV industry without Tesla ( NASDAQ: TSLA ) and while it does not remain the only player in the industry anymore, it is one of the prominent players. The first-mover in the industry, Tesla has been losing market share due to rising competition. However, when anybody mentions EVs, the first company that comes to mind is Tesla.
TSLA stock may not look as attractive as it did a few years ago but holding a small position in the company is a smart move. In the second quarter, the company delivered 4,43,956 vehicles and managed to make big moves in China. It sold 46,227 EVs in China in July, a 47% YOY jump which is impressive. However, the company will have to maintain the same momentum to compete with other EV makers in China.
Exchanging hands for $214, Tesla stock is up 13% over the past six months. The stock is recovering from the bloodbath it suffered from earlier in April but it will take some time to bounce back. While there are several bearish thesis on Tesla stock, I think it is a buy in the dip. Its cheaper EVs could give it a strong footing in the competitive market. The company is expecting profitability for the Cybertruck by the end of the year. Analysts think that Tesla will sell about 950,000 cars in the second half of 2024.
After all, Tesla’s July sales numbers are impressive and if they set the tone for the rest of the year, we could see the company see significant business improvement. Invest a small portion of your portfolio in Tesla stock but do not expect immediate gains.
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