Few long-term growth trends have captivated the attention of investors quite like the electrification of consumer and enterprise vehicles. With most developed countries wanting to reduce their carbon footprint, pushing clean-energy transportation is one of the most direct ways to effect change.
Through the remainder of the decade, electric vehicles (EVs) should be one of the fastest-growing industries on the planet. A report released last year by Beyond Market Insights estimates a compound annual growth rate of 22.5% for the global EV market between 2022 and 2030.
But as investors will note from previous next-big-thing investments, not all companies are going to be winners. Based on the latest round of Form 13F filings from billionaire money managers -- 13Fs provide a snapshot of what the brightest minds on Wall Street bought and sold in the latest quarter -- two EV stocks are being avoided, while another ultrapopular EV stock has recently been tops on their buy list.
Two Rivian R1Ts climbing a hill. Image source: Rivian Automotive.
EV stock No. 1 billionaires are avoiding: Rivian Automotive
The first EV stock billionaire fund managers have seemingly wanted little to do with of late is Rivian Automotive (RIVN 2.84%).
Billionaires Philippe Laffont of Coatue Management, George Soros of Soros Fund Management, and Ole Andreas Halvorsen of Viking Global Investors were all big sellers during the fourth quarter. Coatue and Soros dumped 11.27 million shares and 2.02 million shares, respectively, from their existing positions, while Viking Global sold its entire 1.6 million-share stake.
One reason top-tier money managers have been less than thrilled with Rivian is the company's shrinking cash pile. Even though it closed out 2022 with a little over $12 billion in available capital, it's been burning through more than $1 billion per quarter. Rivian is also spending an aggregate of $5 billion to build a manufacturing plant in Georgia, which is slated to come online next year. While management believes the company can achieve a gross profit at some point in 2024, the cash burn is a real eyebrow-raiser for the time being.
Another issue for Rivian can be seen on the production front. Supply chain challenges limited the company to 24,337 EVs in 2022, which were below the 25,000 EV forecast the company had repeatedly stuck to. Furthermore, its forecast of 50,000 EVs produced for this year is well below the roughly 60,000 EVs most Wall Street analysts had been expecting. It's not clear when the company's supply constraints are going to alleviate -- and billionaire money managers loathe unpredictability.
But if there's one thing Rivian Automotive does have working in its favor, it's the R1T targeting a niche portion of the pickup truck market. The all-electric R1T is fully capable of off-roading, but it targets a luxury audience that automakers such as Ford Motor Company and General Motors aren't going after with their heavy-duty EV trucks.
If R1T production surpasses expectations this year, and Rivian is able to continue scaling output of electric delivery vans (EDVs) for Amazon -- Amazon ordered 100,000 EDVs from Rivian in September 2019 -- Rivian stock could merit another look.
EV stock No. 2 billionaires are avoiding: Nio
The other EV stock billionaires have been avoiding, based on 13F filings, is China-based Nio (NIO 0.25%).
Q4 saw billionaires Jeff Yass of Susquehanna International, Jim Simons of Renaissance Technologies, Ray Dalio of Bridgewater Associates, and John Overdeck and David Siegel of Two Sigma Investments all sell a significant number of Nio shares. In order, these billionaires respectively sold around 4.45 million shares, 1.87 million shares, 1.64 million shares, and 0.62 million shares. The Two Sigma sale completely closed out its position in Nio.
This pessimism surrounding Nio among billionaire investors likely has to do with ongoing supply chain issues and a lack of significant production growth. Although EV deliveries naturally fell off in January (8,506 EVs delivered) due to factory closures tied to the Chinese New Year, Nio has been effectively stuck between 10,000 and 15,000 monthly EV deliveries since June 2022. With an assortment of SUVs and sedans at its disposal, investors would like to see Nio meaningfully ramp up its production.
The other big concern (at least during Q4) is Nio's location. China's zero-COVID strategy, coupled with the potential to have its shares delisted by U.S. regulators, has made China stocks a riskier investment. The good news on this front is that China has abandoned its zero-COVID strategy, and U.S. regulators have since gained access to audited financial statements for publicly listed Chinese companies. In other words, these headwinds are now in the rearview mirror.
Although Nio is liable to deal with supply chain challenges for the next couple of quarters, its numerous forms of innovation make it an intriguing investment. Its ET7 and ET5 sedans have been well received by China's middle-and-upper-income consumers, and the company's battery-as-a-service subscription looks to be a smart way to generate high-margin recurring revenue as well as keep early buyers loyal to the brand.
Tesla's future is very much dependent on growth in Model 3 sales. Image source: Tesla.
The EV stock billionaires are buying hand over fist: Tesla
On the other end of the spectrum is the EV stock Wall Street's billionaire money managers simply couldn't stop buying during Q4. I'm talking about North America's leading EV producer, Tesla (TSLA 1.85%).
All told, seven billionaires lined up to increase their stakes in Tesla. This includes Jeff Yass of Susquehanna (bought 11.48 million shares), Ken Griffin of Citadel Advisors (bought 4.82 million shares), Jim Simons of Renaissance (bought 3.4 million shares), John Overdeck and David Siegel of Two Sigma (bought 1.18 million shares), Steven Cohen of Point 72 Asset Management (bought 878,000 shares), and Israel Englander of Millennium Management (bought 796,000 shares).
The likeliest reason for Tesla to shine bright is its three consecutive years of profits. Whereas the EV divisions of virtually all new and legacy automakers are deep in the red as they spend big on infrastructure, marketing, and product development, Tesla has been able to consistently generate a profit from selling and leasing its EVs.
These billionaire investors are probably also anticipating a big ramp-up in production. The Berlin, Germany and Austin, Texas gigafactories came online last year, and Tesla's Investor Day unveiled plans to build the next gigafactory in Mexico. After crossing more than 1.3 million EVs produced and delivered in 2022, Tesla is aiming to produce 1.8 million EVs this year.
However, I'd take this optimism from billionaires with a grain of salt. While Tesla's Q4 stock plunge may have set the scene for a healthy bounce, the company is still contending with a mountain of headwinds. It's ultimately a cyclical car company contending with supply chain challenges, and it could soon be navigating a U.S. recession. In other words, it doesn't make a lot of sense to pay 51 times Wall Street's consensus earnings in 2023 for a company that's having to cut the price of its EVs to avoid an unwanted buildup of inventory.
Likewise, Elon Musk is a liability that shouldn't be ignored. He's made countless claims and promises that haven't been met but are still baked into Tesla's share price. Don't be surprised if billionaires continue to flip-flop on their view of Tesla.
