There's no denying that the automotive industry is in the midst of a huge transition toward electric vehicles right now.
But investors are right to wonder if the move from combustion engines to electric motors will actually be a potentially lucrative one. I think it is, and now could be a good time to dip a toe into the EV market. Here's why.
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Why now is the right time to buy EV stocks
By 2030, the percentage of new light vehicles (SUVs, cars, and light trucks) that are electric powered will grow from just 13% right now to 60%, according to the International Energy Agency (IEA).
Already, legacy automakers are spending tens of billions of dollars to transition to EVs. Ford (F 0.69%) says that between 40% to 50% of its global vehicle lineup will be fully electric by 2030, and General Motors (GM 1.20%) has said that it will sell only zero-emissions vehicles by 2035.
Both companies are putting their money where their mouth is, with Ford committed to spending $50 billion to reach its goal, and GM is spending more than $40 billion.
GM is so committed to the transition to EVs that it's offered some buyouts to dealers who aren't on board with the EV revolution. Ford is helping its dealers transition as well and is already building on two successful EV launches.
And then there's the consumer demand. A recent TrueCar study showed that nearly 60% of U.S. consumers are open to buying an electric vehicle, a 7% increase from 2021.
Need some further convincing? The Inflation Reduction Act passed earlier this year is offering incentives of up to $7,500 for some new EV purchases and $4,000 for used EV purchases. Not all EVs qualify, but investors shouldn't overlook the influence free money has to boost demand.
A few EV stock ideas
Are you into betting on a horse that's already a winner? Tesla (TSLA 4.96%) may be your EV stock then. The company's vehicle production jumped 54% in the third quarter (reported on Sept. 30) to 365,923 and is on track to make 2 million vehicles annually in 2023.
It also has an enviable gross margin of nearly 25%, compared to Ford's 15%.
Or maybe the Chinese automotive market is more your style. Nio (NIO -0.48%) could be a good choice here, as the automaker expands production in the country, and vehicle deliveries climbed 29% to 31,607 in the third quarter.
China is the world's largest automotive market, and Nio is already doing well, with the company's vehicle revenue rising 38% in the third quarter to $1.67 billion.
And if you're a traditionalist, perhaps putting some money toward Ford or GM would better suit your EV investing needs. These companies have the benefit of not having to go all in on EV vehicles just yet, keeping one foot in both automotive worlds as the transition to EVs is completed.
And then there's Rivian Automotive (RIVN -3.62%), which jump-started the EV pickup truck market. Its stock is trading lower than its IPO price and is facing supply chain issues and rising prices. It's also feeling the production pain of a young automotive start-up.
But it also has enough cash to survive through 2025 and has convinced both Ford and Amazon to invest money in its trucks -- with Amazon already making an order for Rivian EV vans to the tune of 100,000.
You'll have to be patient
If there's an asterisk next to EV stocks right now, the fine print would stay that investors will need to be very patient.
Waiting is the essential investment thesis for long-term investors, but it's easy to ignore when the market is as volatile as it is right now.
Can you stomach double-digit percentage declines? Because Tesla is down 51% year to date, Rivian has plunged 74%, Nio has dropped 61%, and Ford is down 36% over the same period. That's not intended to scare you away, but it does show that EV stocks aren't for the faint of heart.
Supply chain issues, rising costs, increasing competition, and the threat of a potential recession are all causing EV stocks to be volatile right now.
But despite those short-term concerns, it's clear that the momentum is already moving away from traditional autos to electric-powered ones. And investors who get into this market now could be very glad that they saw the shift to EVs coming years before it was completed.
