How to Charge Up Your Investments

With manufacturers racing to perfect electric vehicles for launch, making bets on this emerging market can seem daunting. A few weeks ago, I pointed out some of those risks at Tesla Motors (Nasdaq: TSLA  ) . Battery maker A123 Systems (Nasdaq: AONE  ) has seen downside dangers of its own as it waits for Tesla's competitors to roll out their own models. What's the best way to navigate this potential minefield?

Mitigating the risk of shock
I like to split this market into three categories: vehicles, batteries, and electric delivery. On the vehicle side, Tesla has definitely taken the lead; with continued innovation, it could be the visionary leader of the EV market. But to gain that title, the company will have to become profitable and fend off a load of competition. It certainly has the tools to get there, but there are less risky ways to invest in electric vehicles.

Ener1 (Nasdaq: HEV  ) and A123 Systems give you exposure not only to a diverse list of electric vehicles, but also to the grid supplying them with energy. Both companies are testing grid storage solutions that utilities could use to smooth out uneven generation of solar and wind energy. Though neither company is profitable yet, sales are increasing rapidly; as electric vehicles launch, we should see these companies' finances improve.

The safest way to invest in the electric-vehicle market is to avoid the vehicles altogether, and stick to the electricity delivery business. This includes everything from utilities such as Xcel Energy (NYSE: XEL  ) and FirstEnergy (NYSE: FE  ) , which provide electricity, to AeroVironment (Nasdaq: AVAV  ) and General Electric (NYSE: GE  ) , which manufacture charging stations.

Utilities will be helped by the off-peak demand from electric vehicles and an increase in overall demand. As regulated entities, their upside isn't as high as other investment options. But for conservative investors, the lower downside risk (and the dividend) might be worth the trade-off.

As we build a charging infrastructure, GE and AeroVironment are out in front, creating charging stations that will act just like gas stations in the future. Yesterday, Motley Fool Rule Breakers pick AeroVironment's shares popped, partly thanks to a 33% increase in sales from efficient energy systems. The next time you drive your Tesla Roadster across California, you may need to stop by one of these stations to complete your trip.

Depending on your risk tolerance and appetite for potential stock shock, there are a number of ways to invest in the emerging electric-vehicle market. Which one seems best for you? Let us know in the comments below.

Interested in reading more about electric vehicles? Add any of these companies to My Watchlist, which will find all of our Foolish analysis on the stocks you select.

Fool contributor Travis Hoium does not own shares in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

AeroVironment is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On December 10, 2010, at 8:46 AM, g1man wrote:

    I agree that potential electric car adoption is probably an overlooked wildcard in electric utility stocks although that is years away. I wouldn't touch GE though for completely unrelated reasons. Still holding on to TSLA through thick and thin.

  • Report this Comment On December 14, 2010, at 9:20 AM, MKMooney wrote:

    I actually can't wait to own an all electric vehicle. I have seen some comparisons to Tesla Motors that just don't make sense. Tesla seems to be making a higher class of vehicle. Not fair to compare them on price alone. You wouldn't compare a Kia to a Mercedes on price alone. And, the distance is a non-issue, even less with Tesla than the competition. Most families own more than one vehicle or could rent a vehicle for occasional long trips when needed anyway.

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