Are EV stocks running out of juice?
With some EV stocks running into the red, we take a look at the sector to see if it’s electric vehicles’ time to step on the gas or hit the accelerator.
Electric vehicle stocks drop
Several electric vehicle stocks were running out of juice at the start of the week.
Chinese stocks, such as Xpeng, Nio and Li Auto all started trading poorly, although it should be noted that Xpeng and Li are both up 0.93% and 1.01% respectively at the time of writing. Nio remains down 1.37%.
Even Tesla, Elon Musk’s shining beacon of electric vehicle innovation, is subdued, down 2.96% in pre-market trading on Wednesday 18th August.
In the case of Tesla, a new NHSTA probe into the safety of the carmaker’s autopilot system has once again caused a wobble in its share price. The agency highlights 11 crashes that occurred when Autopilot or Traffic Aware Cruise Control systems had been engaged. In fact, Tesla has been under NHSTA investigation since 2016.
Not a great look when Tesla is attempting to position itself as an AI innovator as well as an EV champion.
Nio is also under the crash cosh. A prominent Chinese entrepreneur was tragically killed while testing a Nio ES8 equipped with automatic motorway lane changing software.
Such measures are meant to remove the human element in order to boost safety. Naturally, there will be teething issues if that’s not too glib a term at this early stage in development. But if said features are resulting in car crashes and a loss of human life, then EV stock prices are going to fall. Investor confidence is everything, after all.
Then there are supply chain and logistical considerations to consider. The worldwide computer chip shortage has impact production and vehicle delivery numbers for pretty much all car manufacturers. That includes both internal combustion-powered and electric vehicles.
If you’re unable to build and deliver cars in line with demand, your revenues will probably fall and take your share price with it.
Even companies like Tesla, which delivered a record number of vehicles in the last quarter, will feel the pinch going forward. Developing and manufacturing proprietary chipsets was ruled out by Tesla CEO musk as being too costly.
Can you still ride the EV boom?
Of course. The fact is electric vehicles are pretty much guaranteed to be the future. Even if the course steers ICEs to hybrids to fully electric vehicles, the world is moving away from fossil fuel power.
The UN’s Code Red climate report could precipitate a more rapid move to EVs. We’ve also seen plenty of mandates from the EU, UK and now the US to force legislation toward a purely electric-powered future.
The Biden Administration, for instance, is pushing for half of all new vehicle sales to be EVs by 2030. Similar directives are in place in Britain and the European Union.
EV marques are doing their best to improve their offers. Tesla has committed to a massive expansion programme of new mega factories and updated models. Xpeng has plans afoot to double its annual production capabilities from 100,000 to 200,000 vehicle deliveries per year. It’ll be expanding its line-up to include a new SUV too – a car class that’s a favourite of the Chinese middle class.
The appeal of EVs is still strong for institutional investors. A number of banks and investment firms have upped their holdings in Chinese manufacturers for instance, including:
- Baillie & Gifford – Now holds 14.83m shares in Li Auto
- Goldman Sachs – Now holds 21.44m shares in Nio
- Fidelity Investments – Now holds 13.35m shares in Xpeng
With any major sector, however, you can’t just look at one segment, no matter how large it is. Electric vehicles rely on a massive ecosystem of battery suppliers and chipset/semiconductor manufacturers. It’s here where canny traders and investors may be able to diversify their portfolios when looking at EV stocks.
Analysts have identified several stocks that could offer strong upsides as the electric vehicle industry expands.
- NXP Semiconductors – This company derives half its annual revenues from the auto industry
- Skyworks Solutions – Has plans afoot to greatly expand its EV offer after purchasing peer Silicon Labs’ auto and infrastructure segment
- TE Connectivity – Swiss censors firm recently posted a 52% year-on-year increase in revenues, totalling $3.8bn. EPS came in at $1.79.
- Aptiv – Ireland-based vehicle components manufacturer has a market cap of $44bn and generated $13 in revenues across 2020.
- Freeport-McMoRan – An Arizona-based mining firm with a speciality in copper, Freeport-McMoRan represents the wider infrastructure needed to build electric cars. It has plans to invest in growth projects, which prompted Deutsche Bank to rate the stock as a “buy” in July.
This is just a small snapshot of the types of stocks that could thrive in a world dominated by electric power.
So, while EV stocks are currently on a bit of a negative trajectory, this could all very well change as the industry progresses. It’s one segment to watch closely in the future.