EV stocks are on fire this year. Investors’ enthusiasm and some companies’ turnarounds (Tesla and NIO) have lifted EV stocks across the board.
As gains in Tesla and NIO have touched meteoric levels, investors wonder if there are any more stocks in the EV space that offer similar growth trajectories. We’ll discuss some of these stocks and what they offer.
Why do investors like Tesla stock?
Tesla is a very polarizing stock. Investors and analysts have strong opinions about the stock. Some investors are very passionate about the company and its mission. Tesla is a pioneer in the EV space. Tesla’s mission is to accelerate the world’s transition to sustainable energy.
As more people become aware of climate change and the impact that gasoline-powered vehicles have on the environment, they are pivoting towards companies engaged in providing cleaner energy solutions. Tesla is definitely one of the pioneers in this space. So far, EV stocks have been skyrocketing this year.
Tesla is a very high-growth stock with even brighter prospects. Baillie Gifford, which has huge bets on EV stocks including Tesla and NIO, noted that among all of the current trends underway in the transportation sector, the shift from gas to EVs is the most advanced. In the U.S., EVs accounted for just 2 percent of new car sales in 2018. However, even this minuscule share shows high growth because the market share doubled year-over-year. The future growth will benefit EV companies with strong foundations, which definitely includes Tesla.
Tesla’s products are innovative and unique, which means that other automakers and tech companies emulate them. For example, Tesla’s automatic software update feature has generated a lot of positive interest from consumers and investors. Tesla's Cybertruck is another example of out-of-the-box thinking.
Some investors like Tesla because of CEO Elon Musk’s charismatic personality and futuristic vision. Not all of Musk’s predictions regarding the company have come true. However, his out-of-the-box thinking and innovative designs get investors and consumers hooked on Tesla.
Is Tesla stock risky?
Despite all of the positives, Tesla stock is very risky. The company has made a net profit for five consecutive quarters. Previously, the company wasn't profitable. Tesla still hasn’t delivered a full fiscal year of profits. Measured by many metrics, Tesla is quite overvalued. Tesla is the most valuable automaker in the world with just 1 percent of the global market share compared to Toyota, which has a 12 percent market share. Such an extreme valuation makes you wonder if there is any upside left in the stock or not.
Considering how attractive the EV space has become, many new companies have entered the space and many incumbents have restructured their companies to accommodate more EV production. The rising competition could easily lead to Tesla losing market share, which would make it riskier.
What are some of the other top growth stocks?
In the EV space, it's difficult to match Tesla's growth. However, there are some stocks that show promise. For example, Workhorse stock operates in the niche of last-mile delivery. If the contract with USPS materializes, it would put the company and the stock on a strong growth path.
Plug Power is another niche play in the EV space that produces hydrogen fuel cell systems, which could replace conventional batteries in EVs. Plug Power has a huge potential market ahead of it.
In the Chinese EV space, Li Auto could turn out to be the dark house as it targets the rural Chinese market. Lordstown Motors is also scheduled to bring out its Endurance pickup truck to mass production by the end of next year. If the company can keep to this schedule, it will be the first to the market with the electric pickup truck, which is garnering a lot of consumer interest. Lordstown Motors could give Tesla and other traditional automakers some competition in the EV space.
Is Albemarle a safer bet in the growing EV space?
As investors look to bet on the rising EV market, they are looking beyond EV automakers to the ones providing components or other essential services or materials to EVs. Albemarle is a global specialty chemicals company. It's also the world’s largest lithium producer for EV batteries. Albemarle stock has risen 54 percent year-to-date.
In August 2020, Albemarle warned that its sales have been dropping due to the weak EV market amid the COVID-19 pandemic. In the long term, the demand for lithium is expected to grow as EVs start to replace gasoline vehicles at a quicker pace.
However, there are some risks. Tesla has already mentioned that it could mine its own lithium. If Tesla is able to devise a new and more efficient extraction process for lithium, Albemarle stock could suffer. The stock has run up steeply and the downside risks from now on could be real.