5 EV Stocks In The Spotlight (That Are Not Tesla)

seekingalpha04-12

Tesla gets the most attention in the electric vehicle industry, but there are other EV companies worth considering for investors.BYD, the largest EV company in the world by sales volumes, offers ...

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Richard DruryArticle Thesis The electric vehicle industry appeals to many investors, but one company - Tesla (TSLA) - is getting most of the attention, partially due to ambitious goals when it comes to developing autonomous driving vehicles and robotaxis. But there are many other EV companies that could be of interest to investors as well. In this article, we take a look at five of these companies. Industry Overview While the majority of vehicles being sold around the world are still using internal combustion engines, the ratio of electric vehicles, relative to all vehicles sold, continues to climb. In the last couple of months, EV sales growth has been a bit below estimates, with reasons being uncertainties around government subsidies, high prices, and consumers being reluctant to spend big bucks on consumer items in a higher interest rate environment. Still, EV volumes continued to climb in major markets such as Europe and China. In 2023, more than 8 million plug-in vehicles (which includes BEVs and plug-in hybrids) were sold in China, a number that was up more than 40% compared to the previous year. In Europe, BEV volumes were up more than 30% in 2023, relative to 2022, although December was a weak month due to subsidies ending in Germany. In the United States, 2023 was a record year for electric vehicles, with more than 1.2 million EVs being sold in that year. There have been some warnings about weaker-than-expected EV sales growth in 2024, but even if growth is weaker than in the previous year, growth still is growth - the overall market share of EVs should continue to climb both in 2024 and in the long run. Of course, market growth alone does not mean that companies in this space will be a good investment - some EV companies have already failed, and examples such as the bursting of the cannabis stock bubble or the 2000 tech stock bubble show that buying solely due to market growth potential can be a bad idea. Other factors, such as valuation, company risks, profitability, and so on have to be considered as well. That being said, EV stocks can be interesting for some investors, and for those who do not want to go with highly-valued Tesla, the following five EV players could be interesting alternatives. 1: BYD BYD (OTCPK:BYDDY)(OTCPK:BYDDF) was the largest EV company in the world by sales volumes in the fourth quarter, although Tesla got back to first place in Q1 of 2024, at least when we only consider BEVs and ignore PHEVs. BYD saw its sales volumes grow by 14% during the first quarter on a year-over-year basis. BYD is profitable and has been experiencing growing margins despite the ongoing price war in China's electric vehicle market. The company's increasing scale seems to provide meaningful advantages when it comes to manufacturing costs and operating expenses. The fact that BYD produces batteries itself likely also plays a role in its strong cost structure and helps explain how the company managed to remain profitable despite strong competition in its home market. While BYD is focused on China for now, the company has been expanding internationally and plans to grow its non-China business substantially this year. In Europe, South America, Southeast Asia, and so on, BYD is moving ahead with new model introductions and plans for production plants (e.g. in Hungary). The company believes that it will be able to grow its sales volumes, overall, by around 20% this year. With BYD trading at around 17x to 18x this year's expected net profits, this fast-growing EV player with a significant scale advantage is far from expensive, both relative to its oftentimes unprofitable peers and also compared to Tesla, which trades at more than 3x BYD's PE ratio despite declining profits. 2: XPeng XPeng Inc. (XPEV) is, like BYD, a China-based electric vehicle company. XPeng is smaller than BYD and not yet profitable, making it a riskier pick compared to BYD. Nevertheless, the company has recently gotten attention from investors thanks to strong results for March. During the month, XPeng managed to sell a little more than 9,000 vehicles, which made for a month-over-month growth rate of almost 100%. That being said, February was a rather weak month for EV sales in China, so XPeng's strong monthly growth rate in February should be taken with a grain of salt. Despite the increase, March sales for the company were below the peak levels seen towards the end of last year. XPeng's models are tech-heavy as the company seeks to differentiate its product lineup from competitors' models by branding its vehicles as smart and putting a lot of focus on connectivity. Like Tesla, XPeng is ambitious when it comes to self-driving tech. The company's driver assistance system called XNGP continues to expand, with the service being rolled out to more users in March. XNGP has hit a user penetration ratio of more than 80% in urban driving scenarios, suggesting that users trust the system and like the advantages it provides. While the self-driving vehicle market could see more than one winner eventually, and while things are uncertain for now, XPeng is likely one of the key challengers for Tesla in this space. 3: Li Auto Like BYD and XPeng, Li Auto (LI) is a Chinese electric vehicle player. The company is operating with a relatively unique approach of offering EVs that have a gas-powered range extender. This eases fears about charging and range and has resonated well with consumers in Li Auto's home market China. In March, Li Auto managed to sell 29,000 vehicles, which was more than expected, although less compared to the record levels toward the end of 2023. Li Auto has now sold more than 700,000 electric vehicles overall, making it one of the larger EV pure plays in the world, although Li is still considerably smaller compared to Tesla and BYD. For Q1, Li Auto hit a sales growth rate of 53% compared to the previous year's quarter, which is a very strong result. Many other EV players have grown at a slower pace, including EV king Tesla. Like BYD, Li Auto is profitable, trading at an expected 16x forward net profits, using the analyst consensus estimate for this year's earnings per share. That makes for a rather undemanding valuation, relative to how other EV companies are valued, and considering the company's strong growth rate. For someone seeking an EV investment with appealing business growth that is not trading at a high valuation, Li Auto could be worthy of consideration. 4: Xiaomi Xiaomi Corporation (OTCPK:XIACY) is a Chinese company as well, but unlike BYD, XPeng, and Li Auto, it's not an automobile company. Or, more precisely, it's not automobile focused. Xiaomi produces consumer electronics such as smartphones, TVs, and laptops. The company has decided to move into the EV space, however, and unlike Apple (AAPL), which recently ended its Project Titan, Xiaomi has been pretty successful in moving into this new space. The company has recently released its first EV called SU7: Xiaomi SU7 (Xiaomi)The vehicle has strong specs, offering 220 kW of power, 400 Nm of torque, 74 kWh of battery capacity, and an impressive CLTC range of 668 km. The model can be ordered at Xiaomi's existing store network and is being sold for around $30,000, which does not seem like a high price considering the specs and design of the vehicle. Not surprisingly, the company has received a lot of attention for its first EV introduction, and demand for the vehicle has been strong. The company won almost 90,000 pre-orders in the first 24 hours, which is, considering the hefty competition in China, an excellent debut, I believe. 5: Rivian Rivian (RIVN) is a US-based EV company that offers pick-up trucks and SUVs that have been well-received by customers and automobile experts. The company has reported strong Q1 deliveries, beating estimates with close to 14,000 vehicles being delivered. While that's still way below the volumes that competitors such as Tesla are generating, Rivian has shown encouraging growth in the recent past. During the first quarter, Rivian's sales were around 15% higher than expected. Rivian is not profitable yet and has been generating huge losses in recent years, but the company luckily has a huge cash position on its balance sheet - $9.4 billion as of the end of the fourth quarter. Rivian plans to generate a positive gross profit in the next two years or so, although it's not guaranteed that this will happen - market conditions, raw materials prices, etc. will impact profitability and could result in better or worse profitability relative to expectations. Rivian trades at a rather undemanding 2x forward revenues right now. For someone who is not interested in China exposure, Rivian could be worthy of a closer look as an EV investment. Risks Of An EV Investment Investing in an automobile company can be rewarding when one's timing is good, but the industry has some disadvantages for long-term investors. Margins oftentimes aren't very high, the industry is cyclical, and the industry also is capital intense. With a lot of competition, automobile companies have a hard time generating strong and reliable growth for many years. The general automobile industry disadvantages hold true in the EV space as well. The competitive picture might be even harsher, as there are many EV startups, and since tech companies such as Xiaomi, which are not relevant in the ICE market, are pushing into the EV market. EV sales in many countries are partially dependent on regulation and subsidies, which adds a political risk layer. Supply chains for EVs depend on rare earth metals, lithium, and so on - these commodities can experience substantial price swings and trade tensions could pose a threat as well. Last but not least, the fact that many EV companies are not yet profitable means that many of the EV investment choices have significant company-level risks. Recent failures such as Fisker (OTC:FSRN) illustrate this very well. Conclusion Investors don't have to invest in EV stocks - as noted above, the industry has considerable risks. But for those who want exposure to this growth market, Tesla is by far not the only relevant choice. Rivian gives investors a pick-up truck focus if they want to play that angle and/or if they want to go with a made-in-the-USA investment, while Xiaomi or XPeng offer a \"techy\" focus. BYD is the volume leader in the industry and trades at a huge discount to Tesla, making it, in my mind, the most attractive EV choice today. It's the EV player with the most attractive risk-reward setup, I believe, although investors who are afraid of China-specific risks may disagree with that. For a more in-depth view of BYD, you can check out this recent article.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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