Last year gave investors plenty of reason to smile. When the clock struck midnight, the benchmark S&P 500 and growth-focused Nasdaq Composite had powered higher by 24% and 43%, respectively. While the Dow Jones Industrial Average didn't deliver the same jaw-dropping gains, it did manage to notch a record high during the year, which is more than can be said for the S&P 500 and Nasdaq Composite.
As we push ahead into the new year, investors are eagerly seeking out high-growth trends that could replicate 2023's success. One such next-big-thing investment that continues to draw a lot of attention on Wall Street is electric vehicles (EVs).
The investment thesis for EVs is straightforward: Developed countries want to reduce their carbon footprints, and pushing clean-energy vehicles is an easy way to lower carbon emissions over the long run.
Though growth estimates are truly all over the place, Fortune Business Insights anticipates global EV sales will grow from $385 billion in 2022 to $1.58 trillion by the turn of the decade. In short, it's not difficult to see why investors have such high hopes for EV makers.
The R1T has an opportunity to be a major player in the luxury EV truck space. Image source: Rivian Automotive.
But not all EV stocks, or analyst price targets for EV manufacturers, are created equally. Based on a handful of high-water price targets from Wall Street analysts, three EV stocks are projected to skyrocket 122% to 164% in 2024.
Rivian Automotive: Implied upside of 122%
The first EV stock that at least one Wall Street analyst believes could put the pedal to the metal in the new year is Rivian Automotive (RIVN 6.10%). Analyst Chris McNally of Evercore ISI upgraded Rivian stock three months ago and attached what now seems like a lofty $35 price target. If McNally's prognostication were to become reality, Rivian shares would climb 122% in 2024.
McNally's optimism with Rivian primarily revolves around the company's successful production ramp in the United States. Rivian has two core production models (the R1T truck and R1S SUV), as well as the EDV, its all-electric commercial van.
In fact, Rivian first gained notoriety for landing an order in 2019 for 100,000 of its commercial delivery vans from e-commerce juggernaut Amazon. Though this sizable order is expected to be fulfilled by 2030, it's important to note that Rivian has ended its EDV exclusivity agreement with Amazon. This will allow the company to seek out additional buyers of its EDV, which can further boost its cash flow.
On paper, Rivian should also have a clear path to sizable luxury EV market share with its R1T. Whereas legacy automakers are predominantly focused on duplicating the success of their gas- and diesel-powered heavy-duty trucks, the R1T provides the ability to go off-road, but with a more refined appeal. Considering that Rivian produced north of 57,000 EVs in 2023 (this includes all EVs, not just the R1T), which surpassed the company's own full-year guidance by more than 3,000 vehicles, it would appear that its brand is finding traction with consumers.
But it's not all rainbows and sunshine for Rivian. Building a car company from the ground up is a costly process, and Rivian is losing a lot of money at the moment. Its adjusted gross profit per vehicle delivered is in the negative by more than $30,000, while quarterly operating losses have varied between $1.29 billion and $1.8 billion over the trailing year (ended Sept. 30, 2023).
Though Rivian is sitting on an impressive $9.13 billion in cash, cash equivalents, short-term investments, and restricted cash, its long-term debt more than doubled since the end of 2022, and it has a long way to go to stymie its cash burn. It's a company I'd like to cheer for, but Rivian's operating performance still leaves a lot to be desired.
Lucid Group: Implied upside of 164%
A second electric-vehicle stock that's expected to rocket from the starting line in 2024, based on the forecast of one Wall Street analyst, is Lucid Group (LCID 0.41%). Analyst John Murphy of Bank of America Securities placed a $7 price target on shares of Lucid in November, which based on its closing price of $2.65, as of Jan. 18, suggests it could rise by 164%.
What Lucid Group is attempting to bring to the table for EV buyers is differentiation. With Tesla primarily focusing its production expansion on the more-affordable Model 3 sedan and Model Y SUV, the market for luxury EV sedans is up for grabs. The Lucid Air, which can run anywhere from $75,000 (after applicable credits) to as much as $250,000 with every available option, certainly fits the bill.
The potential advantage of focusing on the luxury EV market is buyer elasticity. This is to say that people with high incomes are less likely to alter their purchasing habits if the economy weakens. In theory, it would position Lucid to outperform in virtually any economic climate.
Unfortunately for Lucid, theory and reality have been miles apart.
The biggest red flag with Lucid is that it's continually missed on the production front. Earlier this month, I highlighted that the company produced fewer than 7,200 EVs in 2022 after Wall Street projections at the start of the year were calling for closer to 20,000 EVs. In 2023, Lucid offered midpoint guidance of 12,000 EVs, but eventually reduced its EV output projection to a range of 8,000 to 8,500 EVs to "prudently align with deliveries." In other words, inventory levels are rising and demand for luxury EVs is weaker than anticipated.
The other plain-as-day problem with Lucid is that its cash pile is shrinking. The company closed out September with $4.42 billion in cash, cash equivalents, and short-term investments. While this might sound like a lot, Lucid's operating loss widened to $2.36 billion through the first nine months of 2023 from $1.84 billion in the comparable period of 2022.
A potentially challenging year for EVs in 2024 makes Lucid Group a stock to avoid.
Image source: Getty Images.
Nio: Implied upside of 139%
The third EV stock with monumental upside in 2024, based on the high-water price target of one Wall Street analyst, is China-based Nio (NIO 8.72%). Analyst Vijay Rakesh of Mizuho Securities set a $15 price target on shares of Nio in December, which represents an implied upside of 139% in the new year.
A prominent catalyst for Nio was the lifting of the zero-COVID mitigation strategy in China in December 2022. After three years of unpredictable lockdowns and seemingly endless supply chain constraints, a return to some semblance of normal has brought consumers back into showrooms and helped alleviate some of the supply chain kinks that held Nio's production back. In 2023, Nio delivered north of 160,000 EVs, which represents a 31% improvement from the previous year.
Another reason for investors to be excited about Nio's prospects is the company's introduction of its NT 2.0 platform. This second-generation platform incorporates improved advanced driver assistance systems (ADAS), which appear to be resonating with buyers. The rollout of NT 2.0 led to a resurgence in SUV sales, which are typically higher-margin units than sedans for automakers.
Nio's out-of-the-box innovation has also served as a differentiator for years. In August 2020, Nio introduced its battery-as-a-service (BaaS) subscription, which allowed buyers to charge, swap, and upgrade their batteries in exchange for a monthly subscription fee. BaaS is a unique way Nio should be able to keep early buyers of its EVs loyal to the brand.
Unlike Lucid, Nio's cash position looks a bit firmer. It closed out the September-ended quarter with $6.2 billion in cash, cash equivalents, and various short- and long-term investments, and landed an additional $2.2 billion equity investment from CYVN Investments in December. Nio appears to have more than enough capital to continue innovating and bringing new models to market.
On the other hand, Nio is expected to lose money through 2025, which means its bountiful cash pile is likely to shrink. Further, investing in Nio means dealing with the unpredictability of the Chinese government and its regulators. Investors should understand that China stocks often look cheap for a reason.
Although Rakesh's $15 price target for Nio isn't out of the question in 2024, a lot would need to go right.
