The electric car market got battered last year as once high-flying stocks crashed beginning in November. Investors that had bid up shares of EV makers and other tech stocks began cycling into more defensive consumer goods plays as the chances for a recession looked more likely. It's still expected to be a trillion-dollar industry by the next decade.
Although many of the players have rebounded sharply over the past month, the sector remains much lower than where it started the year, and the possibility of a correction or worse grows. Rampant inflation and the Federal Reserve's potential response suggest we could see a more challenging time for stocks, in general, and especially for companies that will need to raise capital to meet their goals.
That suggests investors in EV stocks need to look at stocks that not only look cheap today but can weather whatever storm blows our way in the future. The pair of EV companies below should be on your list.
Every EV investor needs to consider Tesla (TSLA -4.23%) for their portfolio. Competition is growing more intense, but the EV leader continues growing at a rapid pace. Deliveries hit almost 1 million last year, and through the first quarter of 2022, they have already exceeded 305,000 vehicles despite the crushing supply chain problems that are impacting the entire auto industry. In comparison, it delivered over 180,000 last year.
Tesla is consistently profitable, unlike most other EV makers, and has been for nearly three years running, and it is developing a growing international presence, too, not just in China but throughout Europe, with its Gigafactory in Berlin opening last month. It expects the plant to produce 500,000 vehicles annually with the possibility of rolling 5,000 vehicles a week off the assembly line.
Tesla's stock has fared better than most, with shares down only 3% year to date but 38% higher over the past year. Yet Wall Street expects annual revenue to more than double in the next five years to over $107 billion, or over 14% compounded annually, with earnings rising more than 17% yearly.
The top EV maker is not a cheap stock by traditional measures such as price-to-earnings or price-to-sales ratios, but with growth just beginning to ramp up, Tesla should be a winner when the rubber meets the road.
2. Gores Guggenheim (aka Polestar)
OK, I'll admit this one might seem risky as special-purpose acquisition company (SPAC) Gores Guggenheim (GGPI) hasn't even completed its merger with Swedish EV maker Polestar Automotive yet. But assuming the deal is consummated, which it's supposed to be within the next few months, the blank check company could put investors in the driver's seat for outstanding returns.
Polestar started off as the luxury performance brand of another Swedish automaker, Volvo (VLVL.Y -1.35%), much the way AMG is Mercedes-Benz's high-performance badge. But Volvo seems to have other ideas these days, and while still an investor in the company, it's also going to produce EVs that Polestar will be competing against.
Still, that pedigree has helped it develop important industry contacts. Volvo, for example, arranged for Alphabet's Google to develop the world's first built-in Android-powered operating system for Polestar, and later this year, Qualcomm's Snapdragon Cockpit Platform will help power the infotainment system.
Polestar has agreements with ChargePoint that lets its cars hook up to any of its charging stations, with an in-vehicle app handling billing and payment. Another agreement with Electrify America allows new Polestar car buyers to charge their vehicles for free for two years.
And while Polestar began as an ultra-luxury brand, with its Polestar 1 starting at $155,000, the Polestar 2 that it just began delivering in the U.S. carries a much more affordable $46,000 sticker price. And the Polestar 3 SUV will be hitting the roadways later this year.
The electric car market is a crowded one, to be sure, and while I wouldn't bet the farm on Gores Guggenheim and its Polestar EV partner, I do see it as being a viable contender because its cars will target the high-end and mid-range of consumers while adding an important SUV component.