Will stocks of electric vehicles collapse in 2021?
Everyone wants to find the next one You’re here (NASDAQ: TSLA) for 2021. No wonder, as its shares are up 663% in 2020 alone. Although it is the leading engine and biggest horse in electric vehicle (EV) racing, many other stocks of electric vehicles increased in the second half of 2020.
Going public through Special Purpose Acquisition Companies (SPACs) has been all the rage for many in this industry, and investors have piled up. Some companies are still pure speculation without any sales, and some are more promising. Here is an overview of some electric vehicle stocks and how they will evolve in 2021 and beyond.
Image source: Getty Images.
EV game players
Tesla isn’t the only company to rapidly increase sales of its electric cars. He built a factory in Shanghai because China is the biggest automotive market around the world, and electric vehicles are growing rapidly. NIO (NYSE: NIO) recently reported that it was accelerating the expansion of production, and its November sales have doubled compared to 2019. And its competitor XPeng (NYSE: XPEV) said its November sales were up 266% from the period a year earlier. These sales are on a low basis, but inventories have nonetheless surged.
The valuations of these Chinese electric vehicles have become even richer than those of Tesla, measured by the price-to-sales ratios.
TSLA PS Ratio given by YCharts.
A high price / sales ratio isn’t even as surprising as seeing companies with high valuations that don’t yet have product sales to measure. And there are also many. Aspiring electric truck builders Nikola, Hyliion Holdings, and Lordstown Engines doesn’t even make a product at this point, but market capitalizations in the billions.
Other paths towards electrification
Beyond electric car and truck makers, there are others trying to fill niches as the industry grows. Electric vehicle charging network operators are attracting the attention of investors. Flashing charging, ChargePoint and EVBox all grow up. The last two merge with the PSPCs Switchback energy acquisition and Beneficial financing TPG Pace, respectively, to be publicly traded.
An arrival bus, whose production is scheduled for the fourth quarter of 2021. Image source: Arrival.
Workhorse Group focuses on last mile delivery trucks and UK arrival (which is made public by CIIG merger) will also manufacture delivery vans as well as municipal buses. There are others who seek to popularize EVs for urban use and special-purpose recreational use. Another, XL fleet (NYSE: XL), Focuses on the transformation of commercial and municipal internal combustion engine vehicles into plug-in hybrid propulsion systems. XL Fleet also plans to expand to fully electric systems and charging through its new XL Grid segment.
How will it shake
The potential market in the EV sector is huge. There will be niches and ancillary businesses that will be successful with the automakers. Investors in 2020 were excited about Tesla’s stock run and piled on other names without thinking about valuation.
Tesla is expected to dramatically increase production beyond this year’s roughly 500,000 vehicles. Even so, being valued at over $ 600 billion is hard to justify. It has at least more potential than just vehicles, including battery technology and solar generation and storage. But NIO, which has a market cap of $ 75 billion and less than 37,000 vehicles delivered between 2020 and November, appears to have an extremely long road to achieving that market value. Workhorse Group has an absurd price-to-sales ratio of over 2,300, with plans to grow production to just 1,800 vehicles in 2021.
So, will EV stocks crash in 2021? Some certainly will. Even those who wish to speculate in a sector with enormous potential should take a closer look at each company’s potential markets and which ones stand out. Arrival, for example, is taking a new approach to manufacturing by using cheaper and more flexible micro-factories for its vans and buses. This decentralized production method sets it apart from its competitors.
Further research to find out more beyond what companies do is how investors can expect to reap the disproportionate potential gains that will come from some in this industry.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.