Electric vehicle (EV) stocks have been taking it on the chin during the recent market downturn. As an industry that is just beginning to sprout, many EV makers are just starting to experience difficulties in ramping up production.
Investors in the sector know it's going to take many years for the industry to mature. It will also take years for the successful companies to become cash-flow positive and profitable. Now that the market has significantly lowered the valuations on these stocks, it's a good time to look at buying two that should be set up to take advantage of the growing sector and be successful investments over the long haul.
Image source: Lucid Group.
Standing out from the crowd
Two early-stage EV makers that are working to differentiate themselves from the crowded industry through their technologies are U.S.-based Lucid Group (LCID -3.92%) and China-based Nio (NIO -0.48%).
Right out of the gate, Lucid earned bragging rights for its battery technology with the longest-rated range in the sector. That, among other attributes, led its Air sedan to be awarded MotorTrend's 2022 Car of the Year just as it went into production. That sector-leading battery range stands out clearly among the competition.
Data source: InsideEVs. Chart provided by Statista.
Nio is also focusing on using its technology to improve the customer experience. The company has Nio houses, which combine showrooms with a place for owners to gather and work remotely with conference rooms, lounges, and libraries. Nio is also leading the sector in battery-swapping technology. It has more than 900 such stations in China and has begun placing them in Europe.
Nio buyers can save money on the up-front purchase of the vehicle by signing up for the battery swap subscription service. Drivers can replace batteries in just several minutes at the swap stations, giving them easy access to fully charged batteries. The subscription provides another income stream for Nio, and it could license the technology to other automakers.
Go where the market is
Nio's expansion into Europe started last year as it established its business in Norway. It plans to grow that move into Europe this year by entering the markets in Germany, the Netherlands, Sweden, and Denmark. With its business in Europe, Nio will have a presence in what are expected to be the largest EV markets for at least this decade. The International Energy Agency (IEA) estimates that China and Europe will make up 65% of total EV sales globally in 2030.
Data source: International Energy Agency. Chart by author.
Lucid may be focusing mainly on the U.S. right now, but it also has global plans. It is already starting to sell small volumes of its luxury sedans in Europe. And it is moving beyond the continent into the Middle East as well. Lucid has said it will build its first overseas manufacturing plant in Saudi Arabia.
Valuation adjustment
Any investment in an EV maker should be expected to be a very long-term commitment. Both Lucid and Nio have major growth and expansion plans. Now that the stocks have dropped nearly 60% just since the start of the year, the valuations have come down. That could help supercharge long-term returns.
Lucid and Nio still have market caps of $26 billion and $22 billion, respectively. So there remains expected growth already built-in. But if they can execute that growth well, now could be a good time to start a position.
