Tesla's (TSLA +2.37%) days as the undisputed champion of electric vehicles are long gone.
The automotive industry is in the middle of an electric revolution, and there is suddenly no shortage of choices for investors who want to buy into the electric vehicle surge. From start-ups to established manufacturers, and from North America to Europe to Asia, electric vehicle stocks are suddenly all the rage.
Odds are not every one of these stocks will end up paying off for investors. But with the days of the internal combustion engine seemingly numbered, there are attractive opportunities to buy into the trend. Here's why three Fool contributors are backing Nio (NYSE: Nio), General Motors (GM +0.35%), and Ford Motor Company (F 1.31%) to power through the disruption and pay off for shareholders over time.
Image source: Getty Images.
This Chinese EV has miles more to run
Lou Whiteman (Nio): Nio has been affectionately been called "the Tesla of China" due to its entrepreneur CEO, its portfolio of luxury vehicles, and its loyal following. The company also has the backing of key partners in China, which should help it to accelerate.
Nio is still a relative newcomer, delivering just 24,439 vehicles in the third quarter. But that number is up 100% year over year. Nio is as well known in its home market as a lifestyle brand as it is for its vehicles, offering perks including Nio clubhouses -- a cross between a dealership showroom and a lounge -- as well as branded accessories, clothing, and food products. It also offers a lifetime warranty on its vehicles and free roadside assistance, helping it to win over skeptical buyers.
The company is also relatively asset-light, working with a government-sponsored manufacturing partner to produce its vehicles. Earlier this year it signed a new agreement that provides capacity for it to manufacture up to 240,000 units annually. Nio is also beginning to spread its wings overseas, opening its first Nio House in Norway ahead of a planned launch there before year-end.
China stocks have been under pressure of late due to fears of a government crackdown. But Chinese leaders are still looking for local champions that can be global winners and automakers, with a relatively low-tech businesses and fewer concerns about data sharing, seem like a natural to continue to be promoted by the government. It also seems likely that Chinese consumers, like their American counterparts, will gravitate toward domestic brands assuming those brands can deliver the same level of quality and reliability as their international rivals.
If so, Nio, with its existing customer base, local government connections, and initial inroads into European markets, is set up well to be a big winner as the automotive industry goes electric. These are still early days, and Nio is by far the most risky, and least certain, investment of these three companies. But Nio looks like it has what it takes to be a winner in the most important auto market in the world.
Why this 'dinosaur' automaker could win the next wave of EVs
John Rosevear (General Motors): Investors who've done well with the first waves of electric vehicle stocks might think it's strange of me to be suggesting General Motors as an investment for the next wave, as EVs go mainstream in the U.S. and Europe.
But I think there's a strong case for GM right now. Here's where I'm coming from:
- I believe that a big shakeout is inevitable: Many, if not most, of the small EV start-ups that have gone public over the last couple of years are unlikely to survive as independent companies.
- I believe that the vast majority of new electric vehicles that come to market over the next five years or so will come from established global automakers, not new entrants.
- Of those global automakers, I think GM is especially well positioned to not just survive, but to grow -- perhaps significantly.
At its annual investor day earlier this month, GM laid out its ambitious plan to double revenue, and increase its profit margin, between now and 2030. The plan is complex, but the key points -- increased market share and profitability from its accelerated plan to shift to electric vehicles, new subscription-based businesses enabled by its fast-growing fleet of connected cars, and rapid growth of its Cruise robo-taxi subsidiary -- are thoroughly plausible.
GM's Cruise subsidiary will have thousands of its Origin self-driving taxis on U.S. roads in 2023 -- and will add hundreds of thousands more in every year thereafter. Image source: Cruise.
And here's the thing: If GM really does manage to double its revenue and boost its margins over the next nine years, or even if it comes close, it could easily be a $200-plus stock.
And if it falls short? I think the incremental sales and profit growth should still be enough to ensure that GM's stock price outpaces the market. You might not get Tesla-like returns -- but I don't think you'll get Tesla-like returns from Tesla over the next few years, either.
An exciting opportunity from an industry stalwart
Rich Duprey (Ford Motor Company): Don't go into an investment on Ford expecting it to be a 10-bagger for your portfolio on the basis of its electric vehicle plans. While even a triple but be tough (we're talking about a stock with a $60 billion market capitalization here), the Blue Oval is one that should be a good long-term performer that will provide plenty of ballast for the rest of your holdings.
There's no question the company is making a big commitment to EVs. It's committed to spending $30 billion on EVs with plans for 40% of its fleet to be all-electric by 2030. That might not be as ambitious as GM, but it's a fully achievable goal.
And Ford is off to a very good start. The Mustang Mach-E has cumulatively sold 18,885 units as of the end of September, putting it second only to Tesla's Model Y in full-electric SUV sales.
Ford also noted it has 150,000 reservations for its F-150 Lightning pickup, up from 100,000 at the end of the second quarter. Based on the experience Ford had with converting a large percentage of Mach-E reservations into deliveries, I'm expecting similar success with the Lightning.
Ford is also taking greater control over its supply chain, recently increasing its ownership stake in solid-state EV battery maker Solid Power and opening a new $185 million research and development battery lab.
That might allow Ford to move battery production in-house, which would help it break away from relying upon foreign manufacturers, including its own, SK Innovation, which is based in South Korea.
As a 100-plus year old company in a mature industry, Ford is never going to attract the eye-popping valuations the market lavishes on Tesla, but at its current price you're buying in at an exciting time for the automaker at a relative discount.
Shares go for eight times estimated earnings, a fraction of its sales, less than four times the free cash flow it produces, and at a minuscule fraction of the massive earnings growth Wall Street forecasts it will generate over the next five years. Ford is one EV maker to bet on for the long haul.
