Investments in the electric vehicle (EV) sector should be made with a multi-year, if not decades, time horizon. Even in regions leading the world in EV adoption, penetration remains low. It will take years for EVs to become a majority in transportation modes, even in the leading markets of Europe and China.
In 2021, battery electric vehicle registrations in Germany alone soared 83% year over year, according to German news service Heise Online. That surge in EV purchases has meant that EVs accounted for almost 14% of new vehicles in Germany last year. But that is precisely the runway for growth that has EV investors excited. With stocks correcting in much of the sector, now is a good time to look into buying EV stocks.
Image source: Getty Images.
The transition is underway
Many EV start-ups are just beginning production, but global leader Tesla (TSLA +4.02%) and several Chinese EV makers are already in mass production. The growth in 2021 deliveries from them all shows the demand is there for EVs to replace internal-combustion-powered vehicles.
*New-energy vehicles only. Data source: Company releases. Chart by author.
While the global market share for EVs, including plug-in hybrids, was only 4% in 2020, the International Energy Agency (IEA) estimates that electric vehicles could make up as much as 34% of all vehicles sold worldwide by 2030. The current decade will be a pivotal one, but the transition to electrified transportation has many years ahead of it.
An increasing number of choices
Some investors think the stock of Tesla, as the established player, will lead the market forward again in 2022. Others wonder if legacy automakers like Ford (F +1.15%) and General Motors (GM +0.50%) could offer better returns from here. They are still valued like legacy automakers but could be Tesla's biggest competition in a relatively short time. Still others want to get in early on names such as Rivian Automotive (RIVN +0.28%) and Lucid Group (LCID +4.79%) that are bringing excitement with much potential, but no proven success yet.
Of course, all of those options come with different risk/reward profiles. Wildly high traditional valuations like market caps of about $70 billion each for Rivian and Lucid could still entice those who feel the promise and expected total addressable market make that risk worthwhile. But the recent market rotation away from high-tech growth stocks has brought the share prices down for virtually the entire group over the last several months.
Data by YCharts
An approach to consider
As many options as there are for different investment goals, it may make sense for some to take a basket approach. That might mean a mix of established automakers working to make the transition, established EV companies at various stages of development, and start-up names that have potential along with the highest level of risk.
Some investors might even want to branch out further to ancillary businesses like battery producers, charging network companies, and even lithium suppliers. There's an approach for every investor's desires and plan. With the sector currently out of favor, those that want exposure should consider buying electric vehicle stocks now at whatever risk level feels appropriate.
