Are Electric Car Companies a Good Investment?

Electric car makers have earned plaudits for their successful pivot from obscurity to mainstream acceptance. And TESLA stock has seen a massive spike as a result. This trend is true for just about every public EV maker out there.

But after several setbacks, such as supply chain problems, many investors are beginning to worry. Are electric car companies a good investment? Let’s take a deep dive into why you should, or shouldn’t invest in EV companies.

Market Appetite for EVs is Increasing

Environmental pundits are betting heavily on EVs because of their impact on the planet. Chinese and European markets, in particular, are looking to invest in EVs. The rest of the world is slowly playing catch up.

The US infrastructure bill also contained provisions for EV-related proposals. The bill allocates some $5 billion to build a charging network throughout the US. It further boosted the shares of charging companies like Volta and ChargePoint Holdings. This signals mainstream acceptance of electric vehicles among the country’s power circles.

Automakers are riding on the coattails of Tesla and making EVs at scale. Getting there won’t be easy because the journey would be rife with challenges. These include labor market problems, supply chain headwinds, inflation, and increasing competition among others.

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Elon Musk’s wealth is tied to Tesla. The eccentric billionaire also happens to be the face of the company. Every tweet and public media appearance sends shockwaves to EV stocks. Tesla had a very successful year in 2021 with major breakthroughs and milestones.

The car maker delivered 936,000 EVs including Model Y SUVs and Model 3 sedans. Furthermore, the company added two new gigafactories in Berlin and Austin to its network.

The factory in Germany has been the subject of much speculation and delays.

More importantly, Tesla has finally entered a phase of making profits. Its net income exceeded $5.5 billion in 20021, up from $721 in 2020. The car maker is pivoting away from regulatory credits as demand for EVs ramps up.

All this success means that the stock price of Tesla is going sky-high. This isn’t to say that the journey for Tesla has been smooth sailing. Supply chain snags, protests from concerned Germans, and delays threaten Tesla stock.

The company is barely keeping up with demands. Delaying the much-anticipated Roadster and Cybertruck doesn’t help their case either. Despite these problems, Tesla stock has increased by over 1,300%. This upward trajectory won’t go down any time soon – unless something radical happens.

For the most part, supply chain problems are plaguing the EV industry as a whole. If anything, Tesla is better equipped than its competition to handle supply chain headwinds. The only threat is failure to keep up with the impressive demand.

At the time of writing, the price of Tesla stock is hovering around $700. It may soar – or it may crash. There is no telling – but the average trend is on the up and up. But as they say, the bigger they are, the harder they fall. If we were to take lessons from Bitcoin, the pendulum could swing either way.

This is why we recommend all investors to approach EV stocks with caution. Invest only what you can afford to lose.

So Should You Invest in EV Companies
So Should You Invest in EV Companies

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NIO is a Chinese electric car maker that has been publicly trading since late 2018. However, it competes with several Chinese EV makers such as Li Automotive and Xpend.

NIO has had an impressive year and sold around 6100 vehicles by February 2022. This represents a jump of only 9.9% yoy growth because of supply chain problems. As we mentioned earlier, the supply chain boogeyman haunts just about every EV-maker out there.

But NIO arguably has the strongest position after Tesla among its competitors. The car maker has sold over 182,000 vehicles to date. This is a proven record that speaks for itself. Its roster of cars includes ES6, ES8, and EC6. NIO is also preparing to deliver the futuristic ET7.

Its major focus is on entering the electric SUV market in China. NIO will compete with Tesla’s Model Y crossover SUV.

The stock price of NIO pales in comparison to Tesla at just $22. Maybe that’s good news because most budget-conscious investors will be able to buy the stock.

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Rivian is still relatively new and has much to prove before investors take it seriously. It went public in the fall of 2021 and was among the biggest IPOs ever. The car maker raised $12 billion and briefly reached a market cap of $150 billion.

It is worth noting that Rivian hasn’t delivered many vehicles. The car maker has produced over 4,400 EVs, including electric trucks and all-electric SUVs.

Their manufacturing facility in Normal, Illinois is fully equipped to meet growing demand. Rivian says that they have 71,000 pre-orders. This amounts to over $850 million that customers will have to pay.

And while all this sounds good on paper, there are a few problems. For one, Rivian increased the average price of its EVs by $12,000. This indicates that the car maker has run into problems. They may be spending more than they are taking in. In other words, the company could be losing money on every car. Rivian claims that all this loss is because of rising costs and inflation.

A recent lawsuit by ex-vice president Laura Schwab isn’t doing well for the company’s image. Schwab alleges that Rivian planned to raise prices after going public.

This is bad news for investors who have taken a leap of faith with Rivian.

The price of Rivian stock has crashed after the backlash and is selling for $30. We advise our readers to hold off on investing in Rivian until performance improves. It’s a risky investment – but one that could pay off if Rivian stays the course.

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Fisker Inc.

Fisker is a promising startup created by the founder of the same name in 2016.

Founder Fisker has experienced ups and downs in the automotive market – including bankruptcy in 2007. This means he has the necessary skill to navigate his new company through tumultuous waters.

But at the time of writing, investing in Fisker represents a bigger risk than Rivian. The car maker has yet to deliver any vehicles but it has received many preorders. In July 2022, Fisker revealed that they had passed 40,000 reservations for their vehicles.

What sets Fisker apart from the crowd is its focus on solid state battery technology. This innovative battery will allow the car maker to fit dense battery packs. The car would have more range per charge with faster charging than lithium ion batteries.

Unfortunately, most cars won’t make it to the market until 2023. Some, like the Ronin may take even longer.

Another defining quality of Fisker cars is their audacious design. This doesn’t come as a surprise because their founder has massive technical experience.

Fisker has partnered up with Foxconn to produce lower priced cars starting at $30,000.

Fisker’s stock price is holding steady at $9 – but expect growth in the future. Media attention around the automaker will swell as they get closer to the delivery dates. This will drive up the price.

If you want to experiment with a risky stock for potential gains, bet on Fisker.

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Canoo has made incredible progress in its short journey after going public in 2020. The EV startup has earned praise for its unique vehicle designs. It was even selected by NASA to build its ground transportation vehicles.

This isn’t to say that the company hasn’t had difficulties. It had a tough year in 2021 and 2022, reporting a massive shortage. The good news is that they have nearly 17,500 pre-orders for their EVs.

However, many investors are worried that Canoo’s financial woes could result in delays. A saving grace for Canoo was the $30.4 million settlement with VDL Nedcar. Their partnership ended last year because Canoo was looking for a different solution.

Stock price for Canoo is incredibly low at just $2. Their market capitalization is $1.4 billion. This may change as the company ramps up manufacturing and inspires more confidence with investors. 

They have not sold any vehicles but have delivery dates of 2022 to 2025.

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Other EV Stocks Worth Looking Into

BHP Group Ltd.

The growing constellation of EV stocks also includes other stakeholders besides carmakers. We’re talking about battery makers, charging stations, and EV-associated products.

BHP Group is one such public company that comes to mind. It is a nickel miner that is playing a crucial role in the supply chain. The market demand for nickel is skyrocketing but supply is barely keeping up.

Most EV makers have been tinkering around with battery chemistries to reduce expenses. Tesla even signed a deal with BHP to source nickel for their batteries.

This represents a huge opportunity of investment that can pay off in the long run. In fact, experts believe that the stock price of BHP is undervalued. It has been on an upward trajectory and is currently hovering around $39.

Albemarle Corp. (ALB)

Albemarle is a non-EV company that is directly intertwined with the EV market. The company is a US-based producer of lithium which accounts for 40% of its revenue. They are aggressively expanding around the world to meet rising demand for the metal.

Albemarle has opened many plants in Chile to boost their capacity. They have invested in countries like Australia to further increase production capabilities. The best part is that even if lithium prices fall, it won’t hurt Albemarle’s stock.

In practice, however, the value of lithium is skyrocketing because of growing demand. Is committed to delivering more returns to its investors and shareholders.

Consider Albemarle if you are looking for a non-EV company with a great track record

Moreover, it would help diversify your stock portfolio in the electric vehicle market.

Are Electric Car Companies a Good Investment
Are Electric Car Companies a Good Investment

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So Should You Invest in EV Companies?

Now may be a good time to invest in EVs while prices are low. But make sure to assess your risk tolerance and prioritize other aspects of your finances. We recommend saving for emergency payments first and pay off high-interest debt first.

US readers should consider investing in a retirement account like a 401(k) instead.

The one thing we know about investing in EVs is that the market is unpredictable. It has proven to be profitable so far – but values will fluctuate.

Stock prices change by the minute driven by hype, fluctuations, and global supply chain issues. Potential investors looking to buy EV stocks should do so now while prices are low. More specifically, aim for low-value stocks like NIO and Rivian.

You can also target non-EV makers like BHP Group Ltd. to diversify your portfolio. But you should be prepared for prices to plummet. Anything could throw the market into chaos and send prices down. If you don’t have an appetite for sharp swings in prices, you shouldn’t invest.

Your EV investment strategy should be to buy what you can afford to lose. We recommend investing no more than 10% of your portfolio in the EV market.

NIO and RIVIAN are the EV stocks that have the best starting point for investors. Tesla has the highest value – by far – among all EV stocks.

Consider Fractional Shares

If the price of Tesla stock is too high, consider purchasing fractional shares.

You can sign up with Robinhood or Fidelity to buy ‘slices’ of your favorite stocks. Prices start as little as $1. If the stock price for Tesla is $700, you could buy a fraction for $1.

The best part is that you can reap the same rewards as other shareholders. You would profit from earnings and get dividends. The only difference is that your earnings would be in proportion to the stocks owned.

Wrapping Up

The information provided is meant to be used for entertainment purposes only. We recommend the reader to thoroughly do their research before buying any stocks. It is also a good idea to consult a financial advisor.

So do you plan on buying stocks in electric car companies? If so, which companies are your top picks? Do share your experiences and insights with us.

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