After a rough start to the year, electric vehicle (EV) stocks have rebounded nicely since the calendar flipped to July. With EV makers Tesla $Tesla Motors(TSLA)$ and Rivian ($Rivian Automotive, Inc.(RIVN)$ down around 21% and 68%, respectively, year to date, but up 22% and 27% this month, investors may be wondering if it's time to purchase some EV stocks.
EV supply chains are being established
Many consumers and companies have questioned whether the world can switch to an EV-based vehicle infrastructure due to battery component scarcity. However, on July 21, $Ford(F)$ eased some of these fears by announcing it has secured the raw materials necessary to produce 600,000 EVs annually by late 2023. Additionally, it has sourced 70% of the battery capacity necessary to support at least a 2-million-EV production rate by 2026.
While this announcement is specific to Ford, it shows how the material supply chains are being established to support this growing industry.
Still, the same problem that hampered traditional vehicles also affected EVs in the second quarter.
The microchip shortage is still raging, affecting all automakers. The lead time for the average microchip averaged 27 weeks in June, nearly double what it was in the five years before 2021. The demand for these chips isn't going away, and companies like Texas Instruments are building new factories to ease the supply crunch. The chip shortage affects EVs more than gas-powered cars, as EVs typically utilize about double the number of chips traditional vehicles do.
This shortage is still a long-term problem, but when it is solved, expect EV makers to be able to run at full capacity, which will likely boost revenue and profits significantly.
How are EV makers doing?
Tesla recently reported its Q2 results, and despite COVID lockdowns and supply chain issues, it still posted great numbers. Total production rose 25% YOY (year over year), while its revenue exploded higher at a 42% clip due to higher vehicle prices. Additionally, its operating margin rose from 11% last year to 14.6% this year, although this does mark a decline from the 19.2% figure it posted in the first quarter.
The company also reiterated its projection of growing annual vehicle production rates by 50% "over a multi-year horizon."
Newcomer Rivian is just beginning its production ramp, but it also gave investors good results. Management reiterated its 25,000-vehicle production goal for 2022 and produced 4,401 vehicles in Q2, up from the 2,553 produced in Q1. Additionally, Rivian began delivering Amazon's electric delivery van (EDV) recently, showcasing its ability to meet the demand of the 100,000 units Amazon wants to be delivered by 2030.
As for traditional vehicle makers like Ford, the switch to EVs is just beginning. In June, Ford produced and sold 4,353 EVs, up 76.6% YOY. Ford has a long way to go to meet its 600,000-EV goal by late 2023, but with its vast resources, it should have the means to get there.
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