Three EV Stocks to Hold Long Term as Market Gets Tough
When Apple officially canceled its decade-long electric car project on February 27th, EV investors took note. That a company with such deep pockets would forgo the premium on a ~$100,000 EV suggests that Apple read the market as too shallow for the trouble.
According to Motor Intelligence, EV demand is slowing down, having grown by 71% in the first half of 2022, only for EV sales to slow down to 51% growth in H1 2023. Affordability remains the most significant hurdle alongside undeveloped charging infrastructure and cold winter conditions significantly impacting battery performance.
However, according to J.D. Power polling last October, one in three new vehicle buyers still considers fully battery-powered EVs as their target. While EVs are yet to reach the budget-friendly level of petrol-run vehicles, the Biden admin pledged a 500,000 strong national charging network to make EVs account for 50% of car sales by 2030.
By that year, the EV market size should grow to $823.75 billion at a CAGR of 18.2%, according to the latest Allied Market Research. In the long run, which safer EV bets should investors make to receive exposure to that growth?
Toyota Motor Corporation (NASDAQ: TM)
If any car company has mastered the balance between reliability, cost-effective scaling, and supply chain logistics, it’s Toyota. Over the last three months, the Japanese carmaker’s stock is up 28%, following the expected historic monetary shift from the Bank of Japan.
Considering batteries’ cost as a major adoption hurdle, Toyota has held its EV horses, focusing on hybrids instead. Having pioneered this sector with the Toyota Prius, the company’s cautious approach paid off. From January to November 2023, Toyota sold 3.1 million hybrids.
For comparison, Tesla (NASDAQ: TSLA) delivered 1,808,581 EVs for full-year 2023 in its latest earnings report. Building on its brand recognition, Toyota is slowly ramping up its pure EV lineup, selling four times more units from 2022, at 95,000. By 2030, the company pledged $28 billion to offer 30 EV models.
By 2025, Toyota plans to boost its EV production to 600,000 units and sell 1.5 million EVs by 2026. Given Tesla’s focus on making EV ownership an exclusive luxury experience, a company like Toyota has a lot of leeway to take a share of the US EV market. Presently, the Toyota bZ4X is in line with the Tesla Model 3 at around $40k price level.
Li Auto (NASDAQ: LI – American Depositary Shares (ADS))
Founded in 2015, this Chinese EV manufacturer started the year strong with a 27% YTD boost. Focusing on family-oriented EVs, the Chinese startup outsold Tesla last October at 40,422 vs. 28,626 sold units.
Having launched EV SUVs (Li L7, Li L8, and Li L8) with built-in fuel tanks, the company addresses consumer concerns about charging availability and range. By the end of 2024, Li Auto is poised to launch three pure EVs, following the recent launch of the MEGA model at the $77.7k price range.
For the full-year 2023, Li Auto reported 376,030 deliveries, up 182% from 2022. The company also reported a better gross margin of 23.5% in Q4’23 compared to 20.2% in a year-ago quarter. Likewise, Li Auto delivered $810.2 million in Q4 net income, an uptick of 2,068% from the year before.
With a free cash flow of $2 billion, the company has ample resources to reinvest and expand. Based on nine analyst inputs pulled by Nasdaq, LI stock (ADS) is a “strong buy.” The average LI price target is $55.31 vs the current $44. The high estimate is $63 twelve months ahead, while the low forecast is above the present price level at $48 per share.
The Lion Electric Company (NASDAQ: LEV)
Inherently volatile as a penny stock, LEV is down 15% year-to-date. The company relies on government/municipal contracts for its fleet of school bus EVs in Canada and the US. In addition to school buses, Lion also produces public transit buses, garbage trucks, and other semi-trucks.
These make up for a total of 1,850 vehicles on the road.
Given the strong EV push by both countries, Lion Electric could occupy this supply niche. LEV stock took a tumble last Thursday after reporting $103 million earnings loss for full-year 2023. The company also increased its liabilities by 82% to $145.7 million.
To reduce costs, Lion laid off 7% (100) of its workforce last Thursday, attributing the demand delay to the Canadian Zero Emission Transit Fund, which grants government subsidies. However, as Canada pushes to phase out gasoline-powered vehicles by 2035, Lion’s headwinds are likely temporary.
Presenting an exceedingly cheap exposure to EV stocks, nine analyst inputs pulled by Nasdaq place LEV stock as a “buy”. The average LEV price target is $2.75 vs. the current price of $1.50. The high estimate is $5, while the low forecast is aligned with the present price of $1.50 per share.
Do you think electric vehicles will become affordable by 2026? Let us know in the comments below.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
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