The global automotive industry is at the cusp of a historic transformation as ICE (international combustion engine) cars give way to zero-emission cars. While EVs only account for a fraction of the global automotive sales, their percentage is rising rapidly.
Apart from pure-play EV companies, legacy automakers have also committed themselves to a zero-emission future even though their timelines and pace might vary. What are the fastest-growing auto stocks in the world and which auto companies are good investments for the long term?
Tesla has been the fastest-growing auto stock.
Tesla went public in 2010 and priced the stock at $17 per share, which was above the price range. Tesla has been a wealth compounder and despite a split in 2020, its stock price is above $1,000.
The stock generated absolute returns of 24,390 percent to its all-time high that it hit in 2021. Despite coming off its highs, Tesla stock is the best performing S&P 500 stock over the period. That said, the company only joined the prestigious index in December 2020.
In terms of shipments, Tesla’s journey has been incredible. The company delivered its millionth car in 2020 and delivered almost an equal number of cars in 2021. Tesla is expected to end 2022 with an annual production run rate above 2 million cars.
That isn't a small achievement for the Elon Musk-run company. Most auto majors had written off electric cars as a fad. Fiat Chrysler even said that it doesn't want customers to buy its electric cars because it loses money on them.
Is Audi stock growing fast?
Many have been speculating that Audi is another fast-growing auto stock based on its high stock price. However, the brand is part of Volkswagen and the stock doesn't trade publicly after Volkswagen acquired the remaining float of the luxury carmaker. The publicly available stock price is for 2020.
Which auto companies are growing fast?
Legacy automakers have a big problem at hand. Most legacy automakers might be much smaller a decade from now. While these companies have read the writing on the wall and are aggressively pivoting toward zero-emission cars, they will struggle to protect their current market share due to the increasing number of pure-play EV companies.
Among pure-play EV companies, Tesla expects its car sales to increase at a CAGR of 50 percent in the foreseeable future. Other EV companies like NIO, Xpeng Motors, and Li Auto, which have reached some sort of scale, are also expected to grow their shipments by high double digits.
Then we have cash-rich startup EV companies like Lucid Motors and Rivian whose sales are expected to grow multi-fold over the next five years. However, the sales increase is coming from a lower base because these companies have only delivered a handful of cars so far.
The final set of EV companies includes the companies that haven't started commercial sales yet. The sales growth for these companies would be “infinite” as the base is zero. This subset would include companies like Fisker, Canoo, and even Nikola.
These are the best auto stocks to buy for the long term.
As the automotive industry pivots towards a zero-emission future, there would be long-term winners in both the legacy as well as pure-play EV space. Among legacy automakers, Ford and Volkswagen look like good stocks to buy for the long term.
Ford has doubled down on its EV plans and also restructured the business into two units where one unit would look after the legacy ICE business with the other one would look after the EV business. The company has transformed under its current CEO Jim Farley and has also reinstated the dividend despite a higher capex outlay towards electric and autonomous cars.
Volkswagen has set an ambitious task of becoming the largest EV company by 2025. Given the wide array of brands under its fold, it looks like another good auto stock to buy for the long term.
Investors can consider these electric car stocks for the long term.
In the pure-play EV space, Tesla looks well placed. The company’s execution has been almost flawless even though most EV companies have been struggling with chip supplies. After the crash, even Rivian looks like a good long-term investment considering its now reasonable valuations.