Electric vehicle (EV) stocks have wasted no time in 2022 making a splash. Tesla (TSLA 4.96%) reported its fourth-quarter and full-year 2021 production and delivery numbers on Sunday, blowing expectations out of the water and launching the stock to within striking distance of its all-time high.
Tesla's share price shot up over 14% on the day, which had beneficial ripple effects extending to EV names like Lucid Group (LCID -3.92%). With such a hot start to the year, could EVs be 2022's best-performing industry? Let's look at where the sector could go from here and how investors should play it.
Zeroing in on the hottest industries
In 2020, solar energy captured the spotlight as the best performing industry. The Invesco Solar ETF (TAN -1.29%), which contains a mix of solar energy players, rose over 230% in 2020. In 2021, the energy sector was the best performing sector in the S&P 500 with oil and gas companies benefitting from rising energy prices and stemming from the fact that it had room to rebound after a rough 2020 (the energy sector was the worst-performing sector in the S&P 500 in 2020).
EV stocks did well in 2021, with Lucid gaining 280%, Ford Motor Company up 136%, and many other players outperforming the market. EVs were certainly one of the top industries, but the bulk of the broader market gains was driven by mega-cap tech stocks.
EVs have similar potential to growth industries such as renewable energy, cloud computing, software, cybersecurity, and the metaverse. EVs aren't necessarily a better place to invest, but the chance of success is arguably higher with EVs than, say, which cryptocurrency is going to take off next.
EVs have the potential to impact the daily lives of many in the near future in a personal and visible way. Given how capital intensive the industry is, it's also a long-term growth story that won't change overnight. Companies take time to develop vehicles and scale production. Buying and holding EV stocks could be rewarding from a financial standpoint and the investment thesis is easier for people to understand than say, tech companies working on the metaverse.
The king isn't giving up its throne anytime soon
Tesla delivered over 308,000 vehicles in the fourth quarter, which was 17% higher than the 263,000 expected. To put that number into perspective, consider that Tesla delivered more than two cars per minute in the fourth quarter.
Even more impressive is that Tesla delivered more cars in 2021 than it did in 2020 and 2019 combined. Deliveries increased 87% year over year and are up 924% in the last five years.
|
Vehicle |
2021 Deliveries |
2020 Deliveries |
2019 Deliveries |
2018 Deliveries |
2017 Deliveries |
|---|---|---|---|---|---|
|
Model S/X |
24,964 |
57,039 |
68,650 |
99,393 |
101,312 |
|
Model 3/Y |
911,208 |
442,511 |
312,650 |
145,846 |
0 |
|
Total |
936,172 |
499,550 |
381,300 |
245,240 |
101,312 |
Data source: Tesla.
What separates Tesla from other automakers isn't just its torrid growth rate but its profitability. In just three years, Tesla has evolved from an unprofitable, unpredictable, and overpromising business to a polished company that sports the highest operating margin among major automakers.
TSLA Operating Margin (Quarterly) data by YCharts
Having a high operating margin means that Tesla converts roughly $0.15 of every dollar in sales into earnings before interest, taxes, and so forth. The auto industry is an incredibly capital-intensive field. Tesla's direct-to-consumer sales strategy and negligible advertising expenses minimize costs and do a big service to its profitability.
Sights set on disruption
Lucid and Rivian Automotive (RIVN -3.62%) hope to follow in Tesla's footsteps by starting with lower-production, higher-margin models and then scaling production so that lower-priced vehicles can be profitable. In Lucid's case, it expects to produce and deliver 20,000 cars in 2022, which is how many Tesla delivered in less than the average week during its fourth quarter.
Lucid's numbers may seem paltry in comparison. But if Lucid is successful in rolling out four trims of its Air sedan at price points ranging from $77,400 to $169,000, it could become established as a formidable player in the luxury EV sedan market. As of its third quarter, Lucid said it has over 17,000 reservations, putting the emphasis on mastering mass production instead of sales.
Similarly, Rivian already has over 71,000 reservations for its R1T electric pickup truck. Its Illinois factory has a production capacity of 150,000 vehicles per year, with plans to expand that to 200,000. It's also building a plant in Georgia with an annual capacity of 400,000 vehicles per year.
2021 was the year Lucid and Rivian proved their technological prowess and went public. In 2022, they'll show whether they can produce and deliver their vehicles, and how they're progressing toward higher production and revenue growth. In 2023 or later, investors should have a better understanding of profit and positive operating cash flow.
A red-hot industry
Lucid, Tesla, and Ford easily beat the market in 2021. For EV stocks to continue outperforming in 2022, the established players will need to put up strong revenue and profit growth, and up-and-coming players like Lucid and Rivian will need to narrow the gap between their goals and their results.
Despite the potential for newcomers to disrupt the industry, it's important to remember that Lucid and Rivian are a long way from becoming "the next Tesla." In many ways, Lucid and Rivian are just the tip of the EV stock iceberg. There's never been a better time to invest in EVs because investors have more options than ever. Crafting your own basket of your favorite EV stocks is a great way to gain exposure to an exciting industry without betting the farm on a single prospect.
