For years, scrappy little Tesla (TSLA 2.52%) was the only electric vehicle stock out there... with analysts constantly predicting its demise. Today, it's the largest car company in the world by market cap, and a whole new generation of scrappy little companies is trying to get in on the action. But is there really room for the EV market to grow this much? Or is it just a niche industry that's never going to expand?
Here's what you can expect the electric vehicle landscape to look like in five years, and how you can shape your portfolio to cash in.
Variety, the spice of life
Five years ago, EV buyers in the U.S. had three options:
- A Tesla Model X crossover SUV, with an $80,000 base price tag
- A Tesla Model S luxury sedan, with a $76,000 base price tag
- A Nissan (NSANY 1.12%) Leaf compact hatchback, with a $30,000 base MSRP
Even at $30,000, the Leaf was expensive by compact car standards. The Teslas were just plain expensive. And if you wanted a full-size electric SUV or minivan, or an affordable electric crossover or sedan? You were out of luck.
Today, there are 13 battery-electric vehicle (BEV) models available in the U.S., and 25 plug-in hybrid models (PHEV), not including model variants. Meanwhile, dozens of new models are in the works. For example, at least three companies have announced plans to manufacture electric pickup trucks by 2021. Two of them -- Tesla and Nikola (NKLA -4.36%) -- are also working on electric semi trucks. Others have introduced or announced electric minivans, SUVs, sportscars, and everything in between, either for sale in the U.S., or in other countries with the possibility of eventual U.S. migration. Base pricing for many of these vehicles -- especially the PHEVs -- is in the $30,000-$40,000 range.
It seems clear that in five years, a buyer interested in an electric vehicle will have plenty of varieties to choose from. That points to an expanding market, which should be a positive sign for sector investors.
With every major auto manufacturer currently offering or working on at least one model of electric vehicle, competition is almost certain to heat up. New entrants into the space like Nikola will shake up the landscape even more. While this means we're likely to see more advertising for electric models, it also means there will be some big questions to answer regarding technology.
Some will be complex questions, like which battery types and systems offer the longest range. Others will be very simple, like whether charging stations will be universally standardized. This will probably be sorted out by the market, leading certain options to dominate the landscape.
Companies like Tesla that hold numerous EV patents may have the edge here. Expect to see a fair number of lawsuits, too, as these companies accuse one another of infringement.
Winners and losers
With so many EVs coming to market, each with different branding and different technology, there are almost sure to be some companies that come out on top, and some that come up short. The trouble is, we really have no way of knowing right now which companies are going to be which.
An existing car company like Ford (F -0.68%) might see big success with its upcoming battery-electric Mustang Mach E crossover SUV. But what if it flops? Will Ford try to market more aggressively, fix problems and come out with an updated design, or give up on electric crossovers altogether?
Some of the up-and-coming EV pickup makers, including Nikola and Lordstown Motors, have never manufactured a vehicle before. Design flaws, manufacturing challenges, or technological failures could wreck their finances and reputations before their vehicles even get off the ground.
The moral here is: If you want to invest in electric vehicles over the long term, don't put all your eggs in one basket. Investing in multiple players is probably the best way to go.
No sure things
The electric vehicle landscape is changing rapidly, and while it shows a lot of promise, there are no guarantees for investors. We're highly likely to see more variety in models and tech, resulting in big successes (and probably a few spectacular failures). However, new developments could take the entire industry to an unexpected place, to the benefit or detriment of established and new companies alike.
Even success story Tesla could falter if one of its new models needs to be recalled, fails to catch on, or proves to be less popular than a competitor. Tesla's branding is strong enough that I don't think it's likely, but we're entering a new era of competition in this space, and that's going to bring increased risk for EV investors.