Electric cars -- commonly called EVs, or electric vehicles -- are automobiles with engines powered by electricity rather than gas.
Electric car stocks comprise companies that primarily focus on manufacturing EVs. Companies that manufacture the components used in electric cars -- such as batteries or autonomous vehicle systems -- can also be considered part of the electric vehicle industry.
Even though all the major car companies, including Ford (F -0.07%) and General Motors (GM -1.02%), are developing and/or manufacturing at least one model of electric vehicle, they’re not usually considered electric car companies because their primary products aren’t electric. The best electric car company stocks are generally companies that are already producing and selling electric cars rather than companies just planning to do so.
Electric car stocks on the map
|Tesla (NASDAQ:TSLA)||Palo Alto, California||Model 3 and Model S sedans, Model X and Model Y crossovers|
|NIO (NYSE:NIO)||Shanghai, China||
ES8 and ES6 SUVs,
|Rivian (NASDAQ:RIVN)||Irvine, California||R1T truck, R1S SUV|
1. Tesla: The industry leader
Any list of electric car stocks needs to include the granddaddy of them all, Tesla. Elon Musk’s electric car company had a banner year in 2021. Tesla delivered about 936,000 vehicles. Most of the vehicles were Model 3 sedans and Model Y crossover SUVs. Management has worked through inflation, supply chain, and factory ramp up issues in 2022, with production dipping sequentially in the first and second quarters of the year. However, in the third quarter of 2022, production rose dramatically, hitting an annual run rate of more than 1.4 million vehicles.
Tesla continues to pursue an aggressive production program, looking to increase the output at existing factories in Fremont, CA, and Shanghai. However, the biggest production boost is likely to come from two newer gigafactories -- meaning giant factories -- in Berlin and Austin, TX, which are still in the ramp up phase.
On top of soaring deliveries, Tesla is now producing profits without relying on the sale of regulatory credits. Net income topped $5.5 billion in 2021, up from just $721 million in 2020; less than one-third of its profit came from regulatory credits. The company’s strong results have continued, in 2022, with the company highlighted record revenues, operating profit, and free cash flow in the third quarter of the year.
Despite what looks like very strong operating performance, Tesla’s stock has been in a downtrend for most of 2022. That may have more to do with an epic increase in its stock price, which peaked in late 2021 at over $414 per share. The stock’s value has been cut roughly in half since that point, though it still remains the largest automaker in the world by market cap. And by a surprisingly wide margin.
Although Tesla’s valuation metrics, such as the price-to-earnings and price-to-sales ratios, have come down materially, more conservative investors will probably continue to have some questions about its still lofty valuation relative to traditional automakers.
2. NIO: A Chinese SUV specialist
Chinese electric car maker NIO has been publicly traded since September 2018, but several initial public offerings (IPOs) by other Chinese electric car makers -- such as Li Automotive (LI 0.66%) and Xpeng (XPEV 0.95%) -- have increased investor interest in NIO.
Although the company continues to deal with broader industry headwinds and coronavirus related issues in its home market, NIO managed to increase production by roughly 20% in the first half of 2022. The bulk of those EVs are the company’s ES8, ES6, and EC6 vehicles. Production of its ES7 SUV continues to ramp up. Production of the company’s ET7 sedan is also ramping up, with the new vehicle now being sold into foreign markets.
All of that said, the company continues to bleed red ink on the bottom line. So while the company’s business progress is nice to see, it has yet to translate into sustained profitability.
3. Rivian: A lot to prove
Investors were very excited about Rivian when the EV company went public in late 2021. It was one of the biggest U.S. IPOs ever, with the company raising almost $12 billion. Rivian’s market value briefly topped $150 billion soon after its debut.
Rivian had barely delivered any of its electric trucks or SUVs when it went public, so investing in the stock was the ultimate leap of faith. The company managed to produce more than 1,000 vehicles in 2021, which is a tiny number compared to Tesla and other large automakers. In 2022 it had increased that figure to more than 7,000 per quarter by the third quarter, and expects to hit a full-year target of 25,000.
At the end of the second quarter of 2022, Rivian had nearly 100,000 preorders. These orders, however, are fully refundable, so they may not necessarily be indicative of the true demand for the company’s vehicles. That said, the company has made missteps, including in March 2022 when it announced substantial price hikes affecting future deliveries, hitting almost everyone who had preordered a vehicle. Rivian reinstated the original prices for preorders after customers complained, but the move likely damaged the brand.
Like Tesla, Rivian stock has crashed since peaking in late 2021, with the company’s shares falling by roughly 80% from their highs. The company’s market cap is now about $26 billion, which is quite the drop. However, the company isn’t consistently profitable, so conservative investors will likely still view that number as wildly optimistic. Investors need to understand that Rivian is one of the riskier ways to invest in the electric car industry.
Other electric car technology stocks
Two other EV manufacturers may be worth considering: Lordstown Motors (RIDE -2.44%), which produces electric pickups, and electric delivery van manufacturer Workhorse (WKHS 0.83%). However, both companies are dealing with some issues.
Lordstown warned last year that it didn’t have enough cash to begin commercial production of its Endurance truck, which represented an about-face from what the company had said a few months earlier. The company is now shifting to a contract manufacturing model, and it only expects to produce 500 vehicles this year. That said, it has now begun commercial production of the truck, which is a decidedly positive step that may be worth watching. That said, the cash crunch here continues to be an ongoing issue.
Meanwhile, Workhorse is being probed by the U.S. Securities and Exchange Commission and the U.S. Department of Justice. And it is only expecting to produce between 150 to 250 vehicles in 2022, which is an exceptionally small number, suggesting that bottom line losses are going to be the norm for some time.
If you want to diversify your portfolio exposure to the EV sector and stay away from controversy, an alternative is to buy stock in any of these companies:
- QuantumScape (QS -7.09%): Maker of EV lithium batteries.
- Blink Charging (BLNK 0.3%): Producer of electric car charging stations.
- Hyliion (HYLN 0.0%): Manufacturer of EV drivetrains.
- Velodyne Lidar (NASDAQ:VLDR) and Luminar (LAZR -0.3%): Makers of autonomous driving technologies, such as Lidar.
- Ballard Power Systems (BLDP -0.91%) and Plug Power (PLUG -0.31%): Developers of hydrogen fuel cell vehicle technologies.
Yet another option is to buy shares of Lucid Group (LCID -1.88%). The luxury EV maker has over 35,000 reservations for its Lucid Air and produced roughly 2,200 vehicles in the third quarter of 2022. Lucid expects to manufacture between 6,000 and 7,000 vehicles in the year, but that is a sizable drop from previous projections that were as high as 20,000 vehicles, with supply chain issues acting as a notable headwind. Despite a steadily declining stock price this year, Lucid is still valued at around $20 billion. Like most of the small EV makers, it remains a risky investment choice.
Electric car ETFs
Investors seeking portfolio exposure to the electric car market, but who don't want to select individual stocks, can buy shares in exchange-traded funds (ETFs). There are plenty of options when it comes to electric vehicle ETFs, although none are pure-play investments in EVs.
Fidelity Electric Vehicles and Future Transportation ETF (NYSE:FDRV) is a fairly small, but focused choice, including many of the stocks noted above. It also includes companies like Intel (Nasdaq:INTC), Qualcomm (Nasdaq:QCOM), and Garmin (Nasdaq:GRMN), adding to the diversification of the offering while still remaining true to EV enabling technologies. No single stock makes up more than 5% of the portfolio.
The Invesco WilderHill Clean Energy ETF (NYSE:PBW), which tracks the performance of the WilderHill Clean Energy Index, invests broadly in clean energy. Although no single stock comprises more than 10% of the fund’s holdings, the ETF owns the stocks of plenty of electric car makers. The stocks of NIO, Tesla, Workhorse Group, and ElectraMeccanica Vehicles (SOLO 2.05%) are all held by WilderHill. The fund also owns shares of Blink Charging, lithium-ion battery maker Livent (LTHM 0.34%), and Plug Power.
The Global X Autonomous & Electric Vehicles ETF (DRIV 0.77%) invests in makers of electric and self-driving cars. But the fund mainly focuses on traditional automakers, such as Toyota (TM 1.07%), that are making forays into this space, along with large tech companies that are developing autonomous vehicles, including Apple (AAPL 1.55%) and Alphabet (GOOG -0.22%L) (GOOG -0.22%), .
What makes the electric car industry different?
The electric car industry differs from the traditional automotive industry because it is so new. Until recently, very few companies manufactured any kind of electric vehicle, but now every major automaker in the world is developing or producing an EV.
Because major interest in EVs is so recent, the only established industry leader is Tesla. Start-up EV makers can compete fairly well with traditional automakers for EV market share, making it difficult to discern which companies will ultimately dominate the electric car market. That unpredictability makes investing in the electric car industry more risky than adding portfolio exposure to the automotive industry as a whole.
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The future of the electric car industry
The U.S. infrastructure bill that was signed into law in late 2021 ultimately dropped some EV-related proposals, but funding for EV charging made the cut. The bill provides $5 billion for states to build out a national changing network, and an additional $2.5 billion is earmarked for grants. Access to charging infrastructure is still a pain point for EV owners, so this multi-billion- dollar investment in charging should help boost the appeal of electric vehicles in the long run.
Many companies participating in the EV sector are going public, while legacy automakers plan to release a plethora of electric vehicles over the next five years. Investing in this highly competitive and fast-growing industry is likely to be profitable, but it's important to take steps to minimize your investment risk. Don't invest in just one electric car company but hold positions in several companies of various sizes and consider buying shares in an ETF.