Seemingly overnight, U.S. stock market sentiment has shifted from unrelenting optimism to a frenzy of fear. Those feelings have permeated into the electric vehicle (EV) industry. Share prices of Ford (F -1.92%), General Motors (GM 0.48%), Tesla (TSLA -1.11%), Lucid Group (LCID 0.41%) and Rivian Automotive (RIVN 6.10%) are all down over 20% since Jan. 4.
Investors with nerves of steel and a long-term time horizon could consider buying the dip in Ford stock and Nikola (NKLA 7.23%). Here's what makes each growth stock a great buy now.
Image source: Ford Motor Company.
Ford is accelerating its push toward EVs
Daniel Foelber (Ford): Like the rest of the EV industry, Ford stock has been absolutely crushed in recent weeks as broader market volatility and the impending period of rising interest rates cast a wet blanket on growth industries. The sell-off is arguably warranted as the process of investing in research and development, developing new electric models, building battery plants, and opening production lines is a capital-intensive process that often gets funded with debt.
Yet, some historical context is in order. Monetary policy has been very generous toward the U.S. stock market for years. In fact, low interest rates, coupled with federal stimulus in response to the COVID-19 pandemic were a primary catalyst that helped the U.S. stock market double between 2019 and the end of 2021.
Interest rates began decreasing in response to the U.S-China trade war, which hit peak intensity in the fourth quarter of 2018 and caused a steep correction in the S&P 500 and the Nasdaq. Now that inflation is nearing 7%, it's only natural that the Fed will begin raising rates. The decision will undoubtedly hurt the return on invested capital of some projects and compress margins for other ventures. But it shouldn't inhibit long-term trends such as increased adoption of EVs.
For a company like Ford that has made it abundantly clear it wants to be the leader in the EV pickup truck market, as well as a major player in the electric SUV and van market, rising interest rates are unlikely to derail management's long term vision. It is spending $11.4 billion on twin battery and EV production plants in Tennessee and Kentucky. It also plans to generate 40% of 2030 revenue from EVs.
Ford has every reason to believe it can succeed in the EV market. It sold over 27,000 Mustang Mach-E electric SUVs in 2021 and had to stop taking pre-orders for its highly anticipated F-150 Lightning electric pickup after reservations topped 200,000 in early December.
What separates Ford from industry newcomers is that it can use the strength of its existing business, brand, manufacturing expertise, and massive workforce to springboard capital investment. It's a similar position to integrated oil and gas majors that can use excess FCF to divest toward renewable energy projects.
The cherry on top for investing in Ford stock is a $0.10 per share quarterly dividend, representing an annual yield of 2.1%. For the reasons discussed, Ford stands out as one of the best all-around ways to invest in the EV industry without the risks that come with betting on an unproven player.
It's time to take a fresh look at Nikola — yes, Nikola
John Rosevear (Nikola): Unless you've followed the electric-vehicle space very closely, you might think I'm crazy for suggesting that electric-semi maker Nikola might be a buy. After all, this is the company that became the early poster child for SPAC excess, when its brash founder, Trevor Milton, was escorted out of the building amid allegations that he had exaggerated both Nikola's technology and its order book.
Nikola's high-flying stock crashed after Milton's abrupt departure in September of 2020. It took another big hit after Milton was indicted on three counts of fraud last summer. Now, with its market cap under $3 billion, Nikola seems like a company that has been all but left for dead by electric-vehicle investors.
But here's the thing: While Milton is in a whole lot of trouble, Nikola itself has moved on — and at current prices, it's a relative bargain in the still-high-flying world of EV stocks.
Milton's successor as CEO, Mark Russell, is a show-not-tell kind of leader. He simplified Nikola's business plan to focus on its most important product, the Tre electric semi, and set the company's actually quite-good product and engineering teams to work on delivering the truck. As motivation, Russell set an ambitious goal: Nikola would deliver at least a few Tres to actual customers by the end of 2021.
You may have missed this, but they did it.
Did you know that Nikola delivered its first four trucks to an actual customer in December? Wall Street didn't seem to notice, but the trucking industry did. Image source: Nikola.
Nikola delivered four Tres in December to a company that operates trucks at two ports in California, a huge milestone reached.
The market didn't seem to pay much attention at the time, but others were watching. Since those deliveries, Nikola has had a string of small but upbeat announcements, including news that the Tre now qualifies for big incentives in California, and several trial orders from big commercial-fleet operators.
It seems clear that Nikola's first deliveries have led the heavy-trucking industry to take a fresh look at the company and its products. I think it's time for electric-vehicle investors to take a fresh look at Nikola, too.
The EV industry is ripe with bargains
Tesla and high-flying EV newcomers like Lucid and Rivian tend to capture the spotlight. But legacy automakers like Ford are putting real capital to work and are likely to grow production much faster than newer industry entrants. Similarly, it's easy to discount the potential of a company like Nikola given its prior management's wrongdoings. Weighing the pros and cons of pure-play EV companies, as well as other players, should help you decide which EV stocks deserve a place in your portfolio.
