Electric vehicle (EV) stocks may be taking a hit right now, but there are plenty of reasons to still be optimistic about the EV industry's long-term prospects.

For one, the EV market will be worth an estimated $1.4 trillion by 2027. That number is too big to ignore, and the opportunity becomes even clearer when you consider that 60% of all light vehicles (cars, SUVs, pickup trucks) sold globally in 2030 will be EVs -- up from just 13% right now.

But not all EV stocks will be a home run for investors. Here's why Tesla (TSLA -0.23%) still looks like a good buy and why you should avoid Canoo (GOEV -9.57%)

A red car on the road.

Image source: Tesla.

Buy Tesla to tap into EV growth

Tesla's stock hasn't exactly performed fantastically over the past year. The company's share price drop of 52% over the past 12 months has been fueled by supply chain disruptions, a chip shortage, CEO Elon Musk's distraction with his newly acquired Twitter, and declines in the broader market.

But while this is the short-term narrative of the company, the bigger story looks much better. Consider that Tesla's vehicle deliveries increased 42% in the most recent quarter to 343,830 vehicles and the company is on pace to reach a 2 million-vehicle production run rate in 2023. 

If you follow the EV industry at all you know how difficult it can be for car companies to actually make cars. Tesla is years ahead of other EV start-ups and has continued to pull further ahead as it has brought new EV production facilities online. 

The result could help the company reach Musk's goal of selling 20 million vehicles annually by 2030. 

Tesla's profits are also a bright spot. The company's non-GAAP (adjusted) earnings popped 69% in the third quarter to $1.05 per share, and its automotive gross margin is at an enviable 27.9%. 

Investors should know that Tesla's share price isn't exactly inexpensive, with its shares trading at about 56 times the company's earnings. But it is cheaper than the astronomical P/E ratio of 344 this time last year.   

Canoo has several red flags 

Smaller EV stocks are grinding to a halt right now as inflation rises, supply chain issues rattle the industry, and rising material costs have many young EV start-ups slamming on the brakes. 

But while other EV companies are merely suffering short-term headwinds, Canoo appears to be facing much bigger hurdles. The company went public back in 2020 but Canoo hasn't delivered a single vehicle yet. The company originally said when it went public -- through a SPAC merger -- that it would produce 3,000 to 6,000 vehicles in 2022. 

Canoo is losing money hand over fist -- losses increased to $117.7 million in the third quarter -- and didn't generate any revenue. 

While some may point to Canoo's deal with Walmart to buy up to 4,500 of Canoo's Lifestyle Delivery Vehicles (LDVs) as a reason to invest in the stock, the EV maker is still in the early stages of production and only secured a production facility at the beginning of November.   

Adding to the company's red flags is the fact that Canoo's original founder and CEO are no longer at the company. Additionally, with rising inflation and higher material costs, the days of cheap cash are over for the EV industry -- which could make it harder for smaller players like Canoo to get their businesses off the ground.