Two Electric Vehicle Stocks to Watch Which Aren’t Tesla
Every day, climate change is becoming more and more of a hot issue, with many countries around the world pledging to reducing their carbon footprint over the coming years. As awareness and commitment to this issue continues to increase, we are likely to see a rise in demand for greener technologies.
Electric vehicle stocks could, therefore, represent an opportunity for climate-conscious investors to seek a profit, whilst also fuelling the growth of an industry whose success would hugely benefit our planet. In this article, we will be looking at two electric vehicle stocks to watch over the coming months.
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Electric Vehicle Stocks
Electric vehicles, sometimes referred to as ‘EVs’, are vehicles which are powered by electricity rather than petrol or diesel. Electric vehicle stocks, therefore, are the shares of companies which produce electric vehicles, but could also refer to companies which supply components necessary for manufacturing EVs.
It is a relatively safe assumption that, when you read the words “electric vehicle stocks” the first word that crossed your mind was Tesla; and why wouldn’t it be? Tesla are indisputably king when it comes to EV stocks; and just when you think that you have missed the boat, that their share price could not possibly get any higher, it just keeps moving upwards.
At the time of writing, the Tesla share price has recently shot above $1,000 and for some people, understandably, this may be just a bit too expensive; particularly when you consider that - at the current share price, based on their 2020 full year results - Tesla shares are trading at more than 1,300 times their 2020 earnings.
So, what if you want to invest in the EV industry, but you can’t afford to invest in Tesla? The good - and also bad - news is that there are a multitude of other EV stocks to choose from in this fast growing industry. The better news? We have researched and found two electric vehicle stocks, which aren’t Tesla, for you to watch over the coming months.
NIO is a Chinese electric vehicle manufacturer, which, for a while, was billed as the ‘Chinese Tesla’.
It was this high level of expectation which saw investors pour money into NIO shares in the second half of 2020, pushing up the company’s market capitalisation to more than $100 billion in January 2021. However, since then, interest has cooled and the share price has subsequently retreated – currently trading at around 75% of its all-time highs.
Despite the apparent drop in investor interest, NIO still appears to be an electric vehicle stock which is well positioned to succeed in the future. Although its number of sales pale in comparison to Tesla, who completed over 625,000 deliveries in the first three quarters of 2021, NIO deliveries are growing at a rapid pace.
In Q1 2021 NIO recorded more than 20,000 deliveries – an increase of more than 420% year-on-year (YOY). Whilst in Q2 2021, deliveries were reported at almost 22,000 – a YOY increase of 112%.
Naturally, this increase in 2021 deliveries also resulted in a similar increase in revenue and Q2 2021 saw a YOY increase of 402% in gross profit. However, despite this impressive growth, NIO is still a loss-making company and, according to Q2 results, is in debt to the tune of around $5.5 billion.
Potential investors may well be optimistic about the long-term future as, if NIO can continue increasing deliveries at the rate it has been, then it has the potential to become very profitable. Moreover, NIO recently expanded its operations into Norway, aims to be selling EVs in Germany by Q4 2022 and is set to release three new models in 2022. For these reasons, NIO makes our list of electric vehicle stocks to watch.
The second of our electric vehicle stocks to watch, Xpeng Motors, is also from China – which, being the world’s largest EV market – is awash with EV manufacturers.
Xpeng went public in August 2020 and, as evidenced in the chart below, its share price has been fairly volatile in its time on the stock market. However, since reaching lows in May 2021, the share price has recovered and seems to be following an upward trajectory.
As well as being from China, Xpeng is similar to NIO in other ways as well. It too has recently expanded into Europe, exporting its first EVs to Norway in August 2021. It too remains a loss-making company but, like NIO, its growth over the past year has been impressive.
According to their Q2 2021 results, in the first half of 2021, total deliveries surpassed 30,000, exceeding total deliveries for the full-year 2020 and representing a 459% increase YOY. In Q2 2021, revenue from vehicle sales increased by an impressive 562% YOY and was more than 27% higher than the previous quarter.
Furthermore, gross profit has also been increasing, almost reaching $70 million in Q2 2021, after a loss of $2.5 million in the same quarter of 2020.
Of course, as with NIO, one could make the argument that these increases are to be expected after the pandemic caused a drop in demand for EVs in 2020. But whichever way you look at it, the increases in revenue, gross profit and total deliveries are still impressive. Moreover, as both companies begin to gain a foothold in Europe, these numbers could be set to increase even more.
NIO and Xpeng: Similar Companies, Similar Concerns
We have already highlighted above that these two electric vehicle stocks are following a similar trajectory at present. What we have not highlighted are some of the similar problems which face them.
First and foremost is their geographical location. It is no secret that Chinese regulators have been increasing pressure on big tech companies recently. Up till now, EV manufacturers seem to escaped with minimal government interference. However, in September 2021, Chinese Technology Minister commented that China had “too many” electric vehicle producers and that the government would begin to encourage consolidation.
It is worth noting here as well that the Alibaba Group, which has been on the receiving end of regulators’ crackdowns several times over the last year, holds a 12% stake in Xpeng Motors.
As well as being the potential subject of unwanted attention from regulators, like many other Chinese firms, both companies face the prospect of becoming trapped in the middle of increasing tensions between China and the US (where they are both listed on the NYSE).
The second potential problem for the future prospects of these two companies is one currently shared by many growth stocks and start-up companies: interest rates.
As inflation rises around the world, the prospect of interest rate rises also looms and becomes more likely with each day that passes. For younger companies, this presents the issue of increased borrowing costs, which can seriously hamper growth potential. Furthermore, both companies already have significant amounts of existing debt - £5.5 billion for NIO and £2.2 billion for Xpeng – if interest rates increase, the cost of servicing this debt will also increase.
Furthermore, increases in interest rates decrease the present value of future profits – having a large impact on investors’ valuation of growth stocks like NIO and Xpeng.
Finally, due to the fast growing nature of EV demand, there are many companies trying to establish themselves within this industry. These include more established companies such as Tesla and many new-comers such as Canoo Inc.
This high level of competition may be damaging to growth in the longer term and it is unlikely that all the current companies desperately trying to break into this industry will survive.
However, investors and potential investors will be reassured that both NIO and Xpeng are not only already making significant numbers of deliveries – many EV manufacturers trying to establish themselves are yet to actually deliver any vehicles – but that they also have managed to expand outside of their home country and gain a foothold in Europe, which is the world’s second largest EV market.
Hopefully, now when you hear the words “electric vehicle stocks” you won’t just think of Tesla and remember that there are many other companies out there which are breaking into this highly competitive industry.
The EV stocks we have looked at in this article are well-positioned to succeed in this sector, however, as we have noted, investing in either comes with significant risk and, as with any investment, you should conduct your own research before making any decision.
For those interested in investing in EV stocks, you will be pleased to know that with Admirals, you can invest in Tesla, NIO and Xpeng.
Invest In Electric Vehicle Stocks with Admirals
With an Invest.MT5 account from Admirals, you can invest in both of the EV stocks discussed in this article, as well as Tesla and over 4,300 other shares from some of the world’s largest stock exchanges. Other benefits of the Invest.MT5 account include:
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