EV stocks: legacy marques hit the electric accelerator
Tesla might be the face of electric vehicles, but long-standing manufacturers are matching its spending. Here are some EV stocks to watch.
2021 & electric vehicles
Electric vehicles really do look like the future.
Sales volume tripled year-on-year in H1, according to Woods Mackenzie research. WoodMac predicts 6 million electrically-powered vehicles will be sold by the end of 2021. That’s even with chipset supply constraints.
No year to date will have seen such internal combustion engine sales displacement should WoodMac’s forecast prove true.
We all know of Tesla’s electric vehicle market dominance. Many newcomers in the EV space are in danger of being left in Tesla’s shadow. While the likes of NIO and Li Automotive are attempting to put up a fight, as new brands go Tesla is driving far into the distance.
But what about legacy carmakers? These, in theory, have the supply chain capability, resources and existing market presence to potentially dwarf Tesla going forward. It’s only a matter of time before the sleeping or drowsy giants wake up and put their full industrial might behind EVs.
We’ve already seen the likes of Citroen and Volvo spin off their electric offer into new brands (DS and Polestar in this instance). Indeed, Polestar looks like it’s becoming very much its own entity and is even planning a $20bn SPAC IPO sometime soon.
Even Ferrari, which has resisted the call of pure electric power, for so long is following in the wake of luxury automakers Porsche and Aston Martin in offering a fully EV supercar by 2025.
But not all car manufacturers are created equal. There are those that dominate with their major global presence. These are the ones responsible for the global prevalence of motor vehicles to begin with. And it’s these that have enormous potential.
The largest automakers and conglomerates are pouring billions into electric vehicle research. Some are better prepared than others, but this level of investment can pay dividends in terms of positive stock price movements.
Traders and investors thinking about diversifying their portfolios with EV stocks may find some inspiration below.
Legacy EV stocks to watch
Henry Ford pioneered mass auto manufacturing as we know it. Now the company he started is keen to add his level of ingenuity to their model line-up.
Ford recently announced it was planning on spending $30bn on EV R&D by 2025 and expected 40% of its total sales to come from this market segment by 2030. Its goal is to launch 16 fully electric vehicles by 2022.
Pre-orders for the electric F-150, the truck that the company is essentially built on, have already reached 150,000. Oh, it also has plans afoot to invest $11.5bn in a battery-making facility to support the F-150 exclusively.
F-150 sales average 100 trucks sold per hour. Mr Musk with your Tesla Cybertruck: Ford is coming for you.
In terms of share price performance, Ford is up nearly 2% in day trading at the time of writing.
As well as its electric plans, Ford has been boosted across the previous months by its Q2 2021 earnings. During this time, the brand recorded a surprising $1.1bn profit, readjusting its earnings per share from a loss of $0.03 per share up to EPS of $0.13.
Ford raised its expectation for full-year adjusted earnings before taxes by about $3.5 billion, to between $9 billion and $10 billion.
Additionally, since CEO Jim Farley took control in October 2020, Ford’s share price has soared 113%.
According to its website, General Motors plans to invest $35bn between now and 2025 towards creating a fully electric future.
With this 30% rise in dedicated electric vehicle spending, the US’ number one carmaker certainly has Tesla and other rivals squarely in its crosshairs.
In practical terms, this means a complete model overhaul and construction of dedicated production facilities. That includes two new battery megafactories. One of these is already underway in partnership with Korea’s LG Energy Solutions, while another site is being prepped in Tennessee.
GM confirmed in November it would speed up the rollout of new EVs, with plans to offer 30 models globally by 2025, up from a prior target of 20 by 2023. Chief Executive Mary Barra said the automaker wants to exceed annual sales of 1 million EVs in the United States and China by 2025.
General Motors also recently announced it plans on investing $300m into Chinese auto-pilot developers Momenta to help grow develop self-driving technologies. This could also help GM get its own slice of the lucrative Chinese automotive market – the largest in the world.
In terms of share price outlook, Goldman Sachs recently came out as saying it thinks GM is undervalued.
“General Motors (NYSE:GM) is seen as an attractive stock that captures the benefit from an industry recovery in production as well as opportunities to benefit from EVs and advanced driver-assistance systems,” Goldman analyst Mark Delaney said.
GM started the week on a good footing, rising 2.25% on Monday 27th September. It has subsequently flattened but there are reasons to look at the stock in a bit more depth.
Its E/P ratio of 6.04 makes it undervalued. Additionally, analysts expect its earnings to fall by 5.3% this year before rising at an average annual rate of 13.25% over the next five years. Might be worth a look in the short term.
Volkswagen’s own spending plans dwarf those of the American rivals above.
Across the next five years, the Wolfsburg-based marque will have spent $86bn on a fully comprehensive overhaul of its production capabilities and model collection. Looking further afield, it plans to make 70 fully electric vehicles by 2030.
231,600 VW EVs were sold in 2020. It has plans to double that to 500,000 by the end of 2021. Adding in plug-in hybrid models, overall sales target for vehicles involving some modicum of electric power comes to 1.5m.
VW also has its eyes on the Chinese prize. It has announced it is launching its ID.3 and ID.4 models in China soon. The ID.4, an electric SUV, will be key to Volkswagen’s Asian expansion plans as this particular car style is a favourite amongst Chinese consumers.
The company’s stock has increased 120% from 2018 up until now, although Forbes believes it is currently reaching the limits of its mid-term potential.
Future earnings will be key in accruing decent performance for VW.
Forbes’ breakdown of the FY2022 outlook is as follows:
- Revenues – €254 billion
- Net income – €13.8 billion
- EPS – €2.75
- Stock price valuation – $47
Of course, VW’s work also includes that of Audi which is launching its own range of luxury EV models. All of its eggs are currently in one big electric basket, but it could pay off as the world moves away from fossil fuels.
Thematic investing: tackling climate change
In our latest thematic investment guide, we look at the wider climate change picture.
How to invest in renewable energy & firms tackling climate change
The wider environmental picture
Our previous thematic investing guide to renewable energy flagged some of the companies specifically fighting the green fight through power generation. Climate change is not just about sustainable energy, though. Lots of moving parts comprise the anti-global warming engine.
Worldwide, masses of time and energy is being poured into combatting global warming. In the first few months of his Presidency, Joe Biden has pledged to increase funding into clean energy sources, reduce the US’ carbon footprint, re-enter the US into international climate accords.
The 2016 Paris Climate agreement, where 197 nations pledged to limit warming temperatures, is rightly seen as a watershed moment in the history of global change. But there is still more to be done.
That’s why, while it’s important to continue to invest in renewable energy, other companies are doing important work outside this sector. Electric vehicles, for example, are one way of tackling rising emissions. Less fossil fuel burned to power vehicles should greatly reduce greenhouse gas volumes in the atmosphere.
Q1 2021 EV sales were up 81% in the US. In China, they are up 239%. The likes of Tesla, NIO and Toyota are real pioneers here, pushing either fully electric or hybrid technology to new areas. Legacy carmakers like Renault, Peugeot, Audi, Ford, and VW are pushing ahead with integrating more EVs into their product lines.
We also see big tech firms doing their bit. Amazon, Alphabet and Facebook have all made strong carbon neutrality commitments. For instance, Amazon head honcho Jeff Bezos launched a $10bn climate change fund and committed the e-commerce behemoth to clean up its supply chains. Alphabet and Facebook are looking for renewable sources to power their energy-hungry data centres and have pledged to continue to invest in renewable energy.
Here are some stocks from firms helping to combat climate change that wouldn’t look out of place in a green-themed investment or trading portfolio.
Thematic investing: climate change focussed stocks to watch
NIO stocks have actually been sliding at the time of writing as part of a wider tech sell-off in response to rising US inflation and bond yields. But there are reasons to be cheerful regarding the Chinese EV manufacturer’s future.
Its Q1 2021 earnings report, released in late April, showed an impressive 19.5% rise in gross margin, beating market estimates, and coming in 3% higher.
Improved sales data shows NIO is on a growth footing too. The company sold 44,000 vehicles in 2020, 108% more than in 2019.
A small unit count initially, especially compared against someone like GM, which sold over 2 million vehicles in the same period, but the growth is the important factor here, not the total number of units sold.
In Q1 2021, NIO had already sold 20,600 vehicles. That’s a 423% increase. The automaker is also launching three new models, including an SUV, this year to gain ground in several market segments.
Factor in estimates that China, already the world’s largest automotive market, is expected 13 million annual EV sales, along with the emergence of China’s middle class, makes NIO an EV stock with plenty of juice left in its batteries.
TPI Composites is a wind energy stock that is looking positively breezy. The firm produces blades for wind farms and other pieces of equipment for wind farm construction and operation.
TPI notched record revenues in its Q1 report, totalling $405 million. This represented a not insubstantial 13% increase against Q1 2020. The company produced 814 sets (a set has three wind blades) this quarter, which was 11% more than the same period last year.
The firm has spent large sums in the past couple of years to improve its manufacturing output. It now has production facilities in the US, Mexico, China, and India, putting it squarely in regional supply chains. TPI is also now looking to reduce its costs going forward, putting it back on the path to profitability.
In sales terms, TPI’s first-quarter net sales had increased by $48 million to $404 million – a 13.5% increase when compared to net sales of $356 million over the same period in 2020. It also recorded a 12.7% increase in turbine blade sales to $42 million.
Of course, TPI is up against some stiff competition in the form of firms like Vestas, but its combination of higher sales and a commitment to reducing operating costs point toward higher profits moving forward. TPI is one of the wind energy stocks to watch.
As stressed earlier, when you’re looking at thematic investing, don’t just stay within renewable energy stocks or wind energy stocks. Think of the wider picture. Companies that have committed to renewable energy may not be suppliers or producers themselves.
Take Google owner Alphabet for instance. The tech giant has long been praised for its sustainability commitments. By 2020, Alphabet claimed it was running on 100% renewable energy. Its data centres are some of the most water-efficient in the world, using 80% less H20 than the typical centre. Alphabet has plans to build more.
Alphabet’s earnings beat estimates in the first quarter of 2021. Revenues grew 34%. YouTube ad revenue was up 50% year-on-year. Earnings per share came in at $26.29 per share against the expected $15.82.
Alphabet’s core business is not related directly to clean power generation. However, it’s a good example of a major corporation with a proven track record of delivering on its emissions-cutting promises. Therefore, it would not be out of place alongside other more-focussed stocks in a climate change combatting portfolio.
Remember the risks of investing in renewable energy & climate change stocks
Whether investing in wind energy stocks, renewable energy, or companies working to fight global warming in general, remember the basic risks. Investing and trading are both inherently risky. Only invest or trade if you can afford to take any potential losses.