There are a lot of fast-growing trends for investors to choose from. But one of the most sustainable high-growth opportunities is the electrification of consumer vehicles and enterprise fleets.
It's no secret that most countries want to reduce their carbon footprint to slow or halt climate change. One of the easiest ways to do this is to promote cleaner transportation solutions. It'll likely take decades for consumers and businesses to shift from combustion-engine vehicles to green-energy solutions, such as electric vehicles (EV). Effectively, this is a golden ticket for automakers to deliver above-average growth for more than a decade to come.
As you might imagine, there is no shortage of auto stocks that want their share of this rapidly growing market. In addition to legacy automakers that are investing billions into EV, autonomous vehicle, and battery research, a number of previously private companies have come out of the woodwork to secure capital in order to make their run at becoming the premier name on the EV landscape.
Two Rivian R1Ts. Image source: Rivian Automotive.
Based on company-reported data and consensus estimates from Wall Street, the following are expected to be three of the fastest-growing EV stocks on the planet over the next four to five years.
Rivian Automotive: Implied four-year sales growth of 43,866%
Rivian Automotive (RIVN -2.21%), which was arguably the hottest initial public offering of 2021, is probably the best-known name among the fastest-growing EV stocks.
At the time of this writing (March 7), Rivian hadn't yet reported its fourth-quarter operating results. But the company had announced production of a little over 1,000 EVs during the quarter.
According to Wall Street, the expectation is for approximately $60.5 million in full-year sales for 2021. However, by 2025, the Street consensus calls for nearly $26.1 billion in full-year sales. That's implied sales growth of nearly 43,900% over four years.
The buzz surrounding Rivian began well before the company went public this past November. It started turning heads when e-commerce behemoth Amazon placed an order for 100,000 of its EDVs (electric vans) in September 2019. Even though Amazon is swimming in operating cash flow and is known to dabble in a number of innovative projects, this 100,000-vehicle order instantly legitimized Rivian as a potential major player in the EV space.
The company has also differentiated itself with its initial EV lineup: the R1T pickup truck and R1S SUV. In particular, the R1T has the potential to carve out its own niche as a premium truck. Although a number of legacy automakers have unveiled electric versions of some of their top-selling heavy-duty trucks, it's the R1T that has the chance to be in a class of its own.
But Rivian investors should understand their expected path to riches could be filled with a lot of potholes. Building an auto company from the ground up is filled with problems. For instance, Rivian took heat last week for announcing, then quickly recanting, a price hike on pre-orders of its R1T. With its EVs starting around $70,000, price hikes of $15,000 to $20,000 aren't pocket change. Everything from rising material costs to supply chain issues could slow Rivian's expansion.
While I wouldn't go so far as to say Rivian won't hit Wall Street's lofty $26.1 billion full-year sales target in 2025, it's certainly off to a bad start by missing already low fourth-quarter production expectations and angering its base of potential customers with price hikes.
Lucid Air deliveries are expected to land between 12,000 and 14,000 in 2022. Image source: Lucid Group.
Lucid Group: Implied four-year sales growth of 38,900%
Another EV stock that looks to be one of the fastest-growing on the planet over the next four years is Lucid Group (LCID 1.19%).
In late February, Lucid reported $26.4 million in fourth-quarter sales, ultimately lifting its full-year revenue above $27 million. But according to Wall Street, the consensus is for the luxury EV maker to deliver almost $10.6 billion in full-year sales by 2025. For those of you keeping score at home, this represents aggregate sales growth of 38,900%!
What will make or break this rapid growth forecast is the Lucid Air sedan. The Lucid Air comes in a variety of packages, with the cheapest starting around $77,000 and promising more than 400 miles in range on a full charge. If you're willing to pay closer to $169,000, you can enjoy up to 1,111 horsepower and a 0-to-60 launch that'll take a little over two seconds. In other words, Lucid Group has made no effort to hide that its luxury sedan is a direct threat to the power and range offered by Tesla's previous flagship sedan, the Model S.
But as I pointed out with Rivian, building an auto company from the ground up is a process, and there are bound to be speed bumps along the way.
For example, Lucid recently updated its production guidance to between 12,000 and 14,000 EVs in 2022. That's down from a target of 20,000 EVs that was issued as recently as the third quarter of last year. CEO Peter Rawlinson blamed global supply chain issues for the significant reduction in projected output.
Investors would also be wise to keep an eye on Lucid's balance sheet. For instance, the company priced a whopping $1.75 billion convertible bond offering in December. Even though these notes bear a low interest rate (1.25%) and the company has plenty of cash at the moment, it's also spending aggressively on new factories.
A Nikola Tre electric semi truck. Image source: Nikola.
Nikola: Implied five-year sales growth is infinite
The third and final EV stock expected to deliver jaw-dropping sales growth over the next five years is Nikola (NKLA -2.41%).
Whereas Rivian and Lucid generated sales in 2021, Nikola did not. That means any future revenue will result in infinite sales growth. According to Wall Street's consensus estimate, the company's sales are expected to grow from $0 to $4.9 billion between 2021 and 2026.
When Nikola went public via a special purpose acquisition company (SPAC) in June 2020, it had two catalysts creating a lot of excitement within its shareholder base. First, there was the expected rollout of the Badger, a battery EV (BEV) or fuel-cell EV (FCEV) pickup truck that would start at around $60,000. Americans love trucks, and the Badger was viewed as Nikola's way of pushing into the consumer market.
The second catalyst was the expected launch of Nikola's BEV and FCEV semi trucks. Today, this is the only catalyst that remains. The Badger was shelved before it even rolled off the assembly line due to Nikola failing to find a manufacturing partner for the project. The company noted in its fourth-quarter operating update that it's begun the first deliveries of its BEV semi trucks.
Not to sound like a broken record, but Wall Street's lofty revenue targets for four or five years down the line could be a tough sell. This is a company that was hit with fraud allegations by sell-side firm Hindenburg Research in 2020.
While many of the allegations were proved false by an independent review committee, a settlement with the Securities and Exchange Commission in December for $125 million revealed that a number of statements regarding truck reservations made by former CEO Trevor Milton were false or misleading. Milton was indicted on three counts of fraud last July.
Nikola has endured a public and monetary spanking for misleading investors, and the project that initially most excited investors (the Badger) never got off the ground. This leads me to believe that $4.9 billion in sales by 2026 may not be achievable.
