It's a rough time in the market, although some industries are suffering worse than others. Electric vehicle (EV) stocks, in particular, have been shelled. Even the ringleader, Tesla (TSLA 12.06%), wasn't immune from the sell-off. Upstarts Rivian (RIVN -2.21%) and Nio (NIO 3.49%) have seen their stock prices slashed even worse.
The sell-off begs the question: Is now a good time to buy EV stocks? Many of these stocks are now valued lower, so investors who have avoided this sector might find value in looking into the EV space.
Image source: Tesla.
Tesla
The largest and most successful EV manufacturer, Tesla, recently reported a solid first quarter. The company posted 87% YoY (year-over-year) automotive quarterly revenue growth and an impressive 17.7% net income margin. However, it only grew its production by 69% YoY, which indicates Tesla is charging more for its vehicles or selling a greater proportion of higher-priced ones, as its revenue is growing faster than production.
This discrepancy is a positive sign for investors, as it shows Tesla has pricing power. Pricing power is essential, as Tesla is bringing two more factories online in Germany and Texas. As Tesla begins to fill the market with more supply, it will need to balance pricing and production. However, with only three days of global vehicle inventory supply, Tesla is moving products quickly, showing plenty of demand for EVs.
This demand bodes well not only for Tesla, but also for other EV manufacturers like Rivian and Nio. The demand is there; now, adequate supply needs to be developed.
Tesla also announced it sees 50% annual growth in vehicle deliveries over multiple years. Even though the stock is sliding, there hasn't been much negative news coming from Tesla (as long as you discount CEO Elon Musk's Twitter sideshow).
The stock remains expensive but now trades for a forward price-to-earnings (P/E) ratio of 61. While some may consider this too expensive for a car manufacturer, it is significantly cheaper than when it traded for more than 100 times earnings earlier this year.
With Tesla down nearly 40% from its all-time high, it may be an excellent opportunity for investors who missed Tesla to get in. Tesla is doing well, but what about some other EV makers?
Rivian
Rivian went public in November 2021 and opened at more than $100 per share, implying a market cap of around $91 billion. Its market cap peaked at more than $140 billion shortly afterward, and after that, the stock has marched straight down. At that time, Rivian hadn't delivered a vehicle to a non-employee customer, so there was a lot of hype pumped into the stock.
Image source: Rivian.
Rivian now sits at around a $25 billion market cap of around $26 per share at the time of this writing. However, Rivian's production has started to ramp up. Since its production run began, Rivian has produced more than 5,000 vehicles and now has more than 90,000 vehicles on pre-order, including 10,000 after its price increase in March. In its latest report, it kept its 25,000-vehicle annual production target, so investors still have a lot to look forward to.
Rivian lost $1.45 billion when assessed from a free cash flow standpoint. However, with nearly $17 billion in cash on its balance sheet, Rivian has plenty of financial resources to continue operating and growing before being pressed for cash.
However, I don't believe Rivian's stock is a buy here. Investors are OK to take a speculative position in Rivian, but going all-in wouldn't be wise. Even though business is looking up for Rivian, it still has a lot to prove in terms of manufacturing capabilities.
Nio
Nio is a capable EV maker. In fourth-quarter 2021, Nio delivered 25,034 vehicles, up 44.3% YoY. While this is significantly less than Tesla's 310,048, it still showcases Nio's capabilities.
While nearly all of Nio's sales are in China, the company leased a 200,000-square-foot headquarters building in California, showing the company is getting closer to selling vehicles in the U.S.. By 2025, Nio plans to be selling in more than 25 countries, which will be a massive boost for its business.
While Nio is still losing money, it will have no problem raising more money because of its status as one of the few capable EV manufacturers.
Nio's stock is down nearly 80% from its all-time high established in early 2021, and it has a market cap of $24 billion -- about the same as Rivian. However, Nio has proved its manufacturing capabilities and is growing its vehicle sales at a 49.3% pace. I think Nio is a solid buy here, as the company has huge expansion plans and potential.
EV stocks are out of favor with the market, making it a perfect time to purchase them. The aspirations of these EV manufacturers span out past five years, so investors should be committed to holding them for at least that long unless something happens with the business. Now could be a generational buying opportunity for these stocks -- don't miss it.
