Electric vehicles (EV) are a hot investing topic these days. Not so much because they constitute a significant share of auto sales, but more because the prices of EV-related stocks are skyrocketing on future speculation.
President Joe Biden has said he wants the entire federal fleet of vehicles to be replaced with EVs. Such action will be an expensive undertaking and is unlikely to happen quickly, but it's significant news. That's on top of recent government bans in parts of the European Union and elsewhere on the sale of gas-powered vehicles by some point in the next 10-15 years.
All these moves are creating an extra buzz in the EV investment sector at the moment and EV stocks are jumping. Tesla (NASDAQ:TSLA) stock spiked about 350% in the past 12 months alone. Even veteran carmaker General Motors' (NYSE:GM) stock is getting an EV boost too, reaching all-time highs relative to its bankruptcy protection filing back in 2009.
For investors, the price spikes for EV-related stocks lately make it a hard industry to ignore. But which EV stocks are actually solid long-term investments? Some would tell you to go with the young upstarts. But I think the advantage -- and value -- actually lies with the stocks of traditional automakers.
Four pure EV plays that could be appealing
Undoubtedly the best known of the EV stocks right now, Tesla, is also the most financially viable. It has actual products and plenty of sales. Tesla reported revenue of $31.5 billion for the full year 2020. Under generally accepted accounting principles (GAAP), Tesla reported 2020 earnings of $0.64 per diluted share, giving shares a trailing 12-month P/E ratio of 1,275 times earnings. Tesla shares carry a market capitalization of around $783 billion. Tesla shares seem to be perpetually valued based on future speculation. Estimates of $4 per share in earnings in 2021 would give the stock a forward P/E ratio of around 212 times earnings potential.
So what has investors so enamored of Tesla? The obvious pull here is the company's production lead over other upstart rivals.
Lordstown Motors (NASDAQ:RIDE) attained its EV popularity for one key reason: a focus on truck production. Pickup trucks are the single most popular sales segment in the auto industry, which makes Lordstown Motors an interesting option. Lordstown's focus initially is on commercial sales, which is wise because it can make "fleet" deals for large numbers of vehicles. Focusing production in a former General Motors plant in Ohio positions Lordstown to take advantage of Biden's goal of the government EV fleet being built in America.
But Lordstown Motors has yet to sell any trucks. All it has at the moment is a business plan and about $4.4 billion in total market capitalization. As of September, the company said full production wouldn't start until 2022. As of Jan. 21, Lordstown had non-binding reservations for about 100,000 EVs but no confirmed sales -- yet. With its Endurance pickup priced at about $45,000 after a federal EV rebate (total base price of $52,500), the company has $5.25 billion in revenue potential for non-binding orders thus far. That suggests Lordstown shares are currently trading at a discount to future sales (so long as those 100,000 reservations are fulfilled).
Another EV company to consider is Lucid Motors. Investors have been pouring big money into Churchill Capital IV (NYSE:CCIV) on a rumor that this SPAC might be merging with Lucid. Lucid Motors also currently has no sales (the Lucid Air is set to come to market this spring), but it is intriguing because of its ties to Tesla. Lucid's CEO is Peter Rawlinson, a former chief engineer for Tesla's Model S. Lucid is a highly speculative investment, as the enthusiasm for it is based on the vehicle's engineering (Lucid claims a range of over 500 miles per charge).
My favorite pure EV play is one you can't even buy yet. Privately held Rivian has designed two "adventure vehicles" that offer some appealing utility to the consumer. Through its R1T pickup and R1S SUV, Rivian has what I consider to be the EV equivalent of Stellantis's Jeep brand and should appeal to outdoor enthusiasts with an environmental interest and financial means.
Rumor has it that Rivian will IPO this year with a $50 billion valuation. That valuation seems highly speculative, even if Rivian has some appealing attributes. Rivian has financial ties and support from Amazon and Ford Motor (NYSE:F). Aside from its sports utility vehicles, Rivian is making electric vans for Amazon's shipping needs. Those order reservations put it further along than some other EV makers.
Tesla is the best-known EV name among these four pure plays, but Rivian is likely the best bet for investors. Its products are the most in line with what the American consumer wants, and its deals with Amazon give it an extremely reliable customer.
A case for the traditional automakers being the best EV investments
While investors seem hot for the pure-play EV makers, they are ignoring the fact that major automakers are not going anywhere. Nor are traditional vehicles (at least not for some time).
The major automotive companies are all working on their own EVs and their traditional vehicles. GM and Ford, for instance, have the infrastructure and industry know-how to produce EVs right now. They also still control the traditional gas-powered car market, thus offering investors the best of all worlds at a fraction of the stock price. General Motors trades at 12 times earnings and Volkswagen (OTC:VWAGY) at just under 20 times earnings.
EVs have yet to truly alter consumer demand for cars. Names like Ford, General Motors, or Toyota (NYSE:TM) still control the car industry. They have the dealer network necessary for maintenance and servicing, as well as sales. Their move to EVs will likely help maintain their current leadership positions.
Ford's electric F-150 is expected in 2023, with a price tag estimated at around $70,000. As the best-selling pickup of all time, any EV edition of an F-150 is bound to be a fierce competitor. General Motors has its new electric Hummer that supposedly has 350-plus miles of range and the ability to get 100-mile chargeability in 10 minutes. This Hummer EV (slated for fall release) is the foremost competitor to Rivian's lineup.
Volkswagen's Porsche brand is targeting the upcoming Lucid Motors Lucid Air and the higher-end Tesla models with its Porsche Taycan. The car has a weak range at under 250 miles, but Volkswagen will continue pushing engineering here.
Anyone who believes that all of these companies are just going to disappear is being naive. Tesla and Lucid Motors won't replace BMW (OTC:BAMXF) and Daimler (OTC: DMLR.Y). These companies are going to blend a lineup of internal combustion engines and electric cars and continue to be major players in the automotive industry.
Heightened competition will change the story
For investors focused on short-term returns, the EV startups have more appeal than a stock like General Motors. But if you're more interested in the broader dynamics of the EV industry, there is a lot of potential in the traditional names. As traditional automakers get more involved, the consumer segment will get more and more EV options. Consequently, each and every automaker will be facing more competition for market share. As that happens, do you want to be invested in companies that are trading at 20 times their actual sales?
When investing, remember that these pure-play EV companies are competing for market share that the larger companies already control. General Motors' recent pledged EV investments strongly suggest the big guys are not going to give it up easily.