Electric vehicles (EV) are the future of the automobile industry. Stricter emissions and fuel-economy targets are boosting the environment-friendly EV market. Amid rising climate concerns, investors are intrigued by automakers that look for solutions to lower global carbon emissions for providing a cleaner energy future.
The commercial viability of EVs, both in terms of affordability and charging infrastructure, is on the rise. The EV market is expected to reach $1,299.3 billion by 2030, at a CAGR of 19.8% from 2020.
With EV trends getting hotter day by day, it seems that investors are worried about missing out on betting big on the same.
EV Makers Catching Investors’ Attention
So far, 2020 has been an amazing year for EVs. While the broader auto industry has witnessed growth of around 4% year to date, many of the EV makers like Tesla TSLA, NIO INC. NIO, Nikola NKLA and Workhorse Group WKHS have recorded a meteoric rise in their share price during the period.
While Workhorse got listed on Nasdaq in 2016, it did had not draw much interest from investors until recently. On a year-to-date basis, shares of Workhorse soared more than a whopping 580%. The company focuses on last-mile delivery. It is the market leader, first mover and only U.S. pure play OEM in medium-duty electrification. Amid significant EV demand, this niche is an $18-billion annual market opportunity, per the company. Investors seem to be particularly excited about the potential of Workhorse's new C-Series delivery vans, which recently received a federal approval for sales in the United States. These C-series vans are designed for last mile service for delivering packages or cargo to final destinations. These vehicles could be of huge interest to package delivery companies like United Parcel Service, FedEx Corp, DHL International and others. The U.S. Postal Service is also set to consider proposals for electric mail-delivery vehicles.
Shares of China-based EV maker NIO have rallied 152% year to date. Despite coronavirus woes impacting sales volumes of most major auto biggies on a year-over-year basis, NIO delivered 10,331 vehicles in the second quarter that exceeded the firm’s guidance and increased 191% from a year ago. Its premium ES6 and ES8 models are enhancing the firm’s prospects. NIO delivered 3,740 vehicles in June, setting a new monthly record. Indeed, the firm has come a long way since the start of 2020, when NIO was facing a cash crunch and was on the brink of filing for bankruptcy amid the COVID-19 eruption in China. However, after securing around $1 billion in new financing from China’s economic-development authorities in April, risks of insolvency are no longer pertinent. Cash infusion from investors and increasing efforts to expand its sales network are starting to yield benefits. The company’s CFO is confident that NIO will meet or surpass gross profit margin and operational efficiency targets.
Electric-truck start up Nikola has been on a roll since it joined Nasdaq after a reverse merger with VectoIQ on Jun 3. The stock has risen 68.3% since then. The company has started taking pre-orders for the upcoming Badger truck, which, Milton (Nikola’s CEO) claims, is “the most bad ass zero emission truck.” By 2024, Nikola targets to generate revenues of $3.22 billion by selling 7,000 BEV trucks and 5,000 FCEV trucks. It should be noted that by 2027, Nikola anticipates production of 30,000 fuel cell electric vehicle trucks. While Nikola’s hydrogen truck and fuel plans are truly ambitious, it is indeed likely to face tough competition from other auto biggies like Tesla. In fact, many are even dubbing the company as the ‘Next Tesla’!
Coming to Tesla, shares of this red-hot EV maker have skyrocketed more than 180% year to date. The stock gained 7.95% yesterday, after the company reported astonishing second-quarter vehicle deliveries that handily surpassed analysts’ estimates. Tesla delivered a total of 90,650 vehicles, which comprised 10,600 Model S/X vehicles and 80,050 Model 3/Y vehicles.
Rally of the Most Valuable Automaker Seems Endless
We know that Tesla is now the most valuable car company in the world in terms of market cap, surpassing its biggest rival for the title, Toyota Motor TM. The carmaker is now worth more than many of its peers combined, including General Motors, Ford, Fiat Chrysler, Volkswagen, Honda and BMW.
Optimistic investors are betting on Tesla taking over the automotive world, but this enterprise still has a long way to go. In fact, many Wall Street analysts have been raising the alarm that Tesla is overvalued. It seems that investors are considering Tesla as a high-growth tech company, totally ignoring the risks of that it runs as a car company. It should be noted here that Tesla sold its 1 millionth car in March, which is less than 10% of what Toyota sells annually.
Nonetheless, there’s a lot going in favor for this firm, including robust Model 3 demand, ramp up of Model Y production, significant Shanghai Gigafactory progress, ambitious Berlin Gigafactory, amazing line-up of upcoming products and aggressive expansion efforts. Tesla has a robust long-term investment opportunity based on its market leadership, progressively broadening global operations and product developments that are going to take the company to new heights in the coming decade. So, fasten your seatbelts as Tesla’s impressive run is expected to continue. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Are Chances of Inclusion in the S&P 500 Index Bright?
Tesla satisfies the qualifying criteria for inclusion in the S&P 500 index in terms of all but one parameter, i.e. profitability. The sum of its trailing four quarters’ net income must be positive, as should be the most recent quarter.
As Tesla has crushed second-quarter delivery estimates, the odds of becoming eligible for S&P inclusion are high. The company reported profits in each of the last three quarters. If Tesla manages one more quarter of positive net income, it will clear the final eligibility criteria for inclusion in the S&P 500 Index.
Musk’s leaked mail to employees is generating enthusiasm among investors. Early this week, Musk sent an e-mail to employees, encouraging them to finish the quarter on a strong note and showing optimism that the firm could break even in the second quarter. The email said, “breaking even is looking super tight.Really makes a difference for every car you build and deliver. Please go all out to ensure victory!”
With the firm’s Fremont factory remaining shuttered for around a month amid COVID-19 woes, production has certainly suffered. However, Tesla’s strong backlog of inventory and cost-saving efforts, including employee furloughs and pay cuts, amid the slowdown might have offered respite. Robust deliveries and cost-containment efforts are likely tohave helped the company get closer to the goal of generating positive net income in second-quarter 2020.
If Tesla manages to remain in the black amid the challenging COVID-19 backdrop, it will be a jaw-dropping achievement for the company and Musk. With that, concerns surrounding Tesla that it is structurally unprofitable will also fade away. Investors are keenly awaiting the firm’s second-quarter results. With many factors working in favor of the stock, one can see the stock making its way to the S&P 500 list this year.
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