Is Now the Time to Buy Electric Vehicle Stocks?

CyrilDavy
2022-04-16

The electric vehicle industry is in its early growth stage. It is witnessing rapid advancements in key areas such as battery costs, efficiency, range of vehicles, self-driving features, cost of vehicles, charging infrastructure, and so on. While the industry is still evolving, an eventual transition from internal combustion engine (ICE) vehicles to electric ones looks certain.

Severalelectric vehicle(EV) companies are trying hard to capture a part of the growing EV market. These include established automakers as well as new pure-play EV companies. Investors are obviously interested in benefitting from the fast growth the sector is witnessing. Is now the right time to buy EV stocks?

EV stocks have corrected considerably

As of this writing, major EV stocks have corrected between 7% to 62% year to date. While Tesla$Tesla Motors(TSLA)$ stock is down roughly 7%,Rivian Automotive's$Rivian Automotive, Inc.(RIVN)$ shares have fallen nearly 62% in 2022.

Other EV stocks that have corrected significantly include Lucid Group$Lucid Group Inc(LCID)$ , which is down nearly 43%, and Nio$NIO Inc.(NIO)$ , which is down roughly 38% so far in this year.

Though the correction in EV stocks has made them more attractive than they were at the start of the year, that doesn't necessarily make all of them buys. Before deciding to invest in any stock, you must take a much closer look at the performance of the company and its prospects.

Not all EV stocks are the same

Even though all the stocks in the chart above make EVs, they differ significantly in terms of their operations, strategies, target market, growth stage, risks, and prospects. These differences result in a gigantic difference in the valuations of the stocks.

For example, Tesla stock trades at a significantly higher price-to-earnings (P/E) ratio than traditional automakers like Ford Motor Company$Ford(F)$ and General Motors$General Motors(GM)$ . This difference also gets reflected in the forward price-to-sales (P/S) ratio. This ratio is useful when the company under consideration isn't profitable yet, making P/E ratio meaningless.

Tesla, Lucid, and Rivian stocks are trading at significantly higher forward P/S ratios compared to those of General Motors or Ford. This difference in valuation is likely attributed to the higher expected profit margins from EVs compared to ICE vehicles. It also reflects the expectations of EV growth, plus expectations for a decline in the sales of ICE vehicles in the coming decades.

Are EV stocks attractive right now?

Almost all EV stock prices have corrected this year, making their valuation more attractive compared to their historical valuations. So, if you've been waiting to enter the space, now could be a good time.

Notably, the valuation gap between stocks is still there, and you might want to spread your bets across a handful oftop EV stocks based on your risk appetite and investment objectives.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

  • DenisGan
    2022-04-16
    DenisGan
    evstocks go to the moon
    • boonk
      soon as diesel price sky high now. even a smarter choice
  • boonk
    2022-04-16
    boonk
    maybe correct another 5%
  • VinnieSim88
    2022-04-17
    VinnieSim88
    [Cool]
  • HarimauJago
    2022-04-17
    HarimauJago
    👍
  • EY12
    2022-04-17
    EY12

    Like

  • hkr
    2022-04-17
    hkr
    Oo
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