The electric vehicle industry is in its early growth stage. It is witnessing rapid advancements in key areas such as battery costs, efficiency, range of vehicles, self-driving features, cost of vehicles, charging infrastructure, and so on. While the industry is still evolving, an eventual transition from internal combustion engine (ICE) vehicles to electric ones looks certain.

Several electric vehicle (EV) companies are trying hard to capture a part of the growing EV market. These include established automakers as well as new pure-play EV companies. Investors are obviously interested in benefitting from the fast growth the sector is witnessing. Is now the right time to buy EV stocks?

EV stocks have corrected considerably

As of this writing, major EV stocks have corrected between 7% to 62% year to date. While Tesla (TSLA -1.41%) stock is down roughly 7%, Rivian Automotive's (RIVN -0.48%) shares have fallen nearly 62% in 2022.

TSLA Chart

TSLA data by YCharts

Other EV stocks that have corrected significantly include Lucid Group (LCID -1.45%), which is down nearly 43%, and Nio (NIO 0.80%), which is down roughly 38% so far in this year.

Though the correction in EV stocks has made them more attractive than they were at the start of the year, that doesn't necessarily make all of them buys. Before deciding to invest in any stock, you must take a much closer look at the performance of the company and its prospects.

A person charging a blue electric car.

Image source: Getty Images.

Not all EV stocks are the same

Even though all the stocks in the chart above make EVs, they differ significantly in terms of their operations, strategies, target market, growth stage, risks, and prospects. These differences result in a gigantic difference in the valuations of the stocks.

TSLA PE Ratio Chart

TSLA PE Ratio data by YCharts

For example, Tesla stock trades at a significantly higher price-to-earnings (P/E) ratio than traditional automakers like Ford Motor Company (F 1.24%) and General Motors (GM 4.17%). This difference also gets reflected in the forward price-to-sales (P/S) ratio. This ratio is useful when the company under consideration isn't profitable yet, making P/E ratio meaningless.

TSLA PS Ratio (Forward 1y) Chart

TSLA PS Ratio (Forward 1y) data by YCharts

Tesla, Lucid, and Rivian stocks are trading at significantly higher forward P/S ratios compared to those of General Motors or Ford. This difference in valuation is likely attributed to the higher expected profit margins from EVs compared to ICE vehicles. It also reflects the expectations of EV growth, plus expectations for a decline in the sales of ICE vehicles in the coming decades.

Are EV stocks attractive right now?

Almost all EV stock prices have corrected this year, making their valuation more attractive compared to their historical valuations. So, if you've been waiting to enter the space, now could be a good time.

Notably, the valuation gap between stocks is still there, and you might want to spread your bets across a handful of top EV stocks based on your risk appetite and investment objectives.