Investing in EV Stocks
The electric vehicle (EV) revolution is well under way around the world, with sales of EVs rocketing in recent years. The global desire to clean up our act when it comes to carbon emissions makes it seem that this trend will continue in the future. But which electric car companies stand to benefit?
In this article, we will examine the prospect of investing in electric car stocks and highlight 3 of the best EV stocks to watch in 2024!
Table of Contents
Why Invest in Electric Car Stocks?
With the world moving towards net-zero carbon emissions by 2050, it seems almost inevitable that the future of the automobile industry is electric.
In 2022, 14% of all new vehicles sold around the world were electric, up from 9% the year before and less than 5% in 2020. With some countries, such as the UK, looking to ban sales of all new petrol and diesel powered cars in the next decade, this trend is more than likely to continue.
Fourteen percent of global sales represents impressive growth, but it’s still a long way from 100%, which is surely the end goal. Therefore, it is likely that there will be a lot more investment in this industry in the coming years, with EV stocks set to benefit.
However, profitability remains an issue for many electric car companies. The majority of EV companies are young and, for the time being, tend to be more focused in scaling up production than turning a profit. Higher interest rates, which increase the cost of borrowing and servicing existing debt, may make the road to profitability even more challenging.
As demand for EVs increases, many new players are entering the space, including large legacy automobile manufacturers such as General Motors. These legacy automakers typically have deeper pockets than younger electric car stocks, which could allow them to muscle in, quickly ramp up production and steal considerable market share.
The Best EV Stocks to Watch
So, what are the best electric vehicle stocks to watch in 2024? It is important to remember that, when looking for the best EV stocks to buy, what stock is the “best” is often subjective and will depend on various factors, including on your investing goals and your tolerance to risk.
In the following sections, we will take a look at 3 electric car stocks and evaluate their prospects in 2024.
Tesla
The first EV stock on our list should come as absolutely no surprise. Whilst it may be predictable, when it comes to electric vehicle manufacturers, Tesla is undoubtedly king. It’s not only the largest electric car company in the world by market capitalisation, but the largest automobile company, both traditional and electric, full stop.
In 2022, Tesla’s total deliveries of 1,313,851 vehicles represented an increase of 40% year on year (YoY). This record number of deliveries confirmed its position as the top EV seller in the world, with the electric car company accounting for more than 18% of global EV sales in 2022. Rising in tandem with deliveries, operating income in 2022 more than doubled to $13.7 billion.
When it comes to pure play electric car stocks, it does not get better than these numbers.
Unlike traditional automakers, who – under pressure to deliver consistent profits - have been slower at making inroads in the EV market, Tesla made it their sole aim to bring electric vehicles to the mass-market and have invested heavily to achieve this.
This high level of investment is key to Tesla’s success. It meant that Tesla investors had to wait more than a decade after Tesla’s IPO for a profitable year, but we are now seeing the benefit of this investment in the scaling up of Tesla’s production. In 2022, operating income rose 109% to $13.7 billion.
Tesla’s success in the EV market has translated to phenomenal success in the stock market. In the five years ended 30 September 2023, Tesla’s share price gained more than 1,300% and herein may lie a problem for those considering investing in this particular electric vehicle stock.
Tesla’s anticipated future success has led to lofty valuations, which may deter some investors. At the time of writing, its market capitalisation is around $825 billion – which is more than the combined market cap of the next nine largest automobile makers.
Rivian Automotive
We move from one end of the spectrum to the other with the next EV stock on our list.
Rivian went public to much fanfare in November 2021 in what was one of the largest IPOs in US history. It raised $12 billion, with its market cap in excess of $120 billion, despite only making delivery of its first 11 vehicles in the previous quarter.
However, the good times in the stock market didn’t last long. Six days after its IPO, Rivian’s share price closed at a high of $172.01 but began to fall the following day. By 11 May 2022, share price had fallen 76% to $20.60.
As we mentioned earlier, profitability is an issue for many EV stocks, and, in many cases, low vehicle delivery numbers are also a problem. Naturally, these two go hand in hand, as higher deliveries should help electric car stocks turn a profit, something which Rivian is working on.
After delivering less than 1,000 EVs in 2021, Rivian delivered more than 20,000 in 2022 and anticipates this number to grow to 50,000 in 2023. Nevertheless, despite improving delivery numbers, operating losses deepened to $6.8 billion in 2022, down from $4.2 billion the previous year.
However, when you factor in that revenue grew from $55 million in 2021 to $1.7 billion in 2022, we can see that Rivian’s operating margin, which measures operating income as a percentage of total revenue, has improved considerably. Rivian also has almost $12 billion cash on its books, which will help weather these losses as production and deliveries are increased.
Nonetheless, an investment in a company such as Rivian, which is still finding its feet and not yet turning a profit, represents a significant risk. Consequently, investors should approach this EV stock with increased caution.
Volkswagen
Whilst the first two EV stocks on our list were “pure-play” electric vehicle manufacturers, the third is not.
With the tide of demand shifting evermore in favour of electric vehicles, legacy car manufacturers are starting to make positive noise in the EV industry. Many have set themselves bold targets and, whilst Tesla steals all the headlines, traditional automakers have been ramping up EV production effectively.
In 2022, the Volkswagen (VW) Group delivered 572,110 electric vehicles (not including hybrids), an increase of 26% YoY. The German car manufacturer was the world’s fourth largest seller of EVs in 2022, accounting for approximately 8% of total global sales.
Although EV delivery numbers only represent a small percentage, less than 7%, of total deliveries, the pace at which they have ramped up production is impressive.
Looking to the future, the VW Group is planning to invest more than €180 billion until 2027 in its electric vehicle production and plans to only sell EVs in Europe from 2033 onwards. So, whilst VW may not be considered by many to be an electric vehicle stock in the purest sense of the term, its rapid expansion and bold future targets certainly warrant consideration.
How to Invest in EV Stocks with Admiral Markets
With an Invest.MT5 account from Admiral Markets, you can buy shares in the 3 electric car stocks highlighted in this article as well as in over 4,500 other companies around the world. Click the banner below to register for an account today:
Electric Vehicle Stocks – FAQ
Are Electric Car Stocks a Good Investment?
The electric vehicle market has grown a lot in recent years, and is set to continue to grow as the world transitions to net zero emissions. Electric car stocks will presumably benefit from increased EV demand, but that doesn’t mean that every company which produces EVs is a good investment. Before investing in EV stocks, conduct your own research and make sure you are fully aware of the risks involved.
What Is the Biggest Electric Car Company?
Tesla is currently the largest electric car company in the world in terms of both market capitalisation and total annual deliveries. In 2022, Tesla sales accounted for more than 18% of the global EV market.
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