Electric vehicles have grown from a tiny number of sales a decade ago to selling 3.1 million units in 2020, according to InsideEVs, and the market continues to grow. In the past year, companies like General Motors and Volkswagen have made big promises to expand EV production in the next decade.
But the growth of EV sales hasn't been all good for EV stocks lately. Churchill Capital IV (CCIV), Climate Change Crisis Real Impact I Acquisition (CLII), and Nikola Corp (NKLA -2.44%) have all cratered of late and investors seem nervous that valuations have grown too much too fast. Three of our Fool.com contributors are weighing in on whether now is the time to buy these beaten-up electric vehicle stocks.
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A high-flying EV stock
Travis Hoium (Churchill Capital IV/Lucid Motors): Since peaking in mid-February, Churchill Capital IV, the special purpose acquisition company (SPAC) that's merging with Lucid Motors, has been in complete free fall. You can see below that the stock is down over 60% and investor enthusiasm seems to have dried up for the merger.
The excitement over Lucid came simply on rumors that it would merge with Churchill Capital IV, which wasn't announced until Feb. 22. But when the details of the transaction were announced, shares went into a tailspin. In total, if the merger is completed as planned, Lucid would get $4.6 billion of cash, including $2.5 billion from a private investment in public equity (PIPE) priced at $15 per share.
At Friday's closing share price of $23.02 per share and using the 1.6 billion shares outstanding after the proposed merger closes, Lucid will be worth about $37 billion. That's an incredible multiple for a company that expects to deliver just 20,000 vehicles in 2022. And that's exactly why the stock has fallen.
Lucid is a high-potential company, there's no question about that, but when investing in high-risk, high-reward stocks, it's important to understand where the balance lies. With a $37 billion market cap, investors are projecting Lucid to be worth nearly half of what General Motors is worth before it even proves it can deliver vehicles on time or on budget. That's not a bet I want to make, so this isn't a SPAC or auto manufacturer that I would be willing to bet on today.
Hedge your bets
Howard Smith (Climate Change Crisis Real Impact I Acquisition): There is a growing number of electric vehicle offerings coming to consumers in the near future. Right now, investors are getting the opportunity to invest in the sector at much lower prices compared to just one month ago.
Not all EV manufacturers will succeed, but it seems inevitable that the overall sector will grow significantly. In a situation like that, it makes sense to look at a "picks-and-shovels" approach that will gain as long as the sector gains, not relying on any one particular winner. Electric vehicle charging solutions are a bet on the infrastructure a growing EV market will need. One leader charging technology company is EVgo, which will soon be traded publicly through a merger with the SPAC Climate Change Crisis Real Impact I.
EVgo is the leader in DC fast chargers (DCFCs) in the U.S., with 50% retail market share, according to the company. DCFCs can be used effectively in commercial settings while consumers are on the go. The combination with the SPAC will provide EVgo $575 million in proceeds to be used to facilitate the growth of its network.
EVgo has partnerships with automakers including General Motors and Tesla, and it focuses on fast charging stations in settings like grocery stores and shopping centers. Property partners include Kroger, Albertsons, and convenience store chain Wawa.
Other EV charging companies focus on different niches, including healthcare networks, serving fleet owners, or residential uses. Investing in charging network stocks somewhat mitigates the risk of trying to pick the winners in the EV manufacturing race. Investors can hedge their bets even further by looking into getting a basket of charging network companies. With shares in its SPAC investor down 30% in the last month, now may be a good time to add EVgo and Climate Change Crisis Real Impact I Acquisition to the list.
Back to its core opportunity
Jason Hall (Nikola): What a wild ride Nikola investors have been on over the past year. Since the company announced it was going public via a SPAC merger in early March last year, shareholders have been on a roller coaster:
What happened? A little bit of everything, including the rollout of several new products, the roots of a big deal to work together with General Motors, and then a massive debacle following a short report that led to the founder, Trevor Milton, leaving the company and blowing up the deal with GM. Fast-forward to today, and the stock price has plummeted from the 2020 highs. The company as it stands now has either shelved or canceled many of the products that got investors excited, including the Badger pickup it was hoping to build with GM, as well as a spate of off-road vehicles and a trash truck.
And frankly, I think that's probably all for the better, since Nikola's original business idea -- heavy-duty trucks powered by either batteries or hydrogen -- is the business I was most interested in when I bought shares of the company early after it went public. Simply put, the best case for hydrogen in transportation is to serve long-haul trucking, and so far Nikola is the one company that's most focused on this use case for hydrogen.
There remains enormous risk: Nikola is still years from a commercially available hydrogen-fueled heavy truck. But if the company can pull it off, it could be a very big winner for investors.
Not all EV investments will win
If you look at the EV market as a whole right now, companies at every end of the spectrum seem to be highly valued, whether that's in EV charging, manufacturing, or even hydrogen trucking. That presents both opportunity and risk for investors, which is important to keep in mind when weighing electric vehicle stocks.
