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While vehicle electrification is a secular long-term growth story, electric vehicle (EV) stocks have whipsawed over the last couple of years. Widespread optimism toward the green energy transition made 2020 a pivotal year for EV stocks, with industry leader Tesla (TSLA) rising over 740% that year.
However, price action was mixed at best in 2021. Tesla rose 50%, and Rivian (RIVN) and Lucid Motors (LCID) had robust listings - but startup EV names like Lordstown Motors (RIDEQ) and Nikola (NKLA), which listed in 2020, effectively crashed, and so did Chinese EV stocks. This was followed by more downside in 2022, when EV names fell across the board. That includes Tesla, often considered the bellwether of the EV industry, which dropped 65%.
EV stocks have remained volatile in 2023, although most are trading with YTD gains – and some have more than doubled in the year. Even as markets stay choppy, here's why I believe Rivian and NIO (NIO) are two EV stocks that look like good buys in August.
Rivian Stock Hits All-Time Lows in 2023
Rivian stock fell to new all-time lows earlier this year. However, it has since rebounded and is now up over 44% for the year.
Rivian raised $12 billion from its mammoth IPO in 2021, which was the biggest since Facebook (now Meta Platforms) (META), and the startup EV company's valuation surpassed $150 billion at the peak.
Its market cap is now just under $25 billion, which is in line with the slump that we have seen in the stock prices of other startup EV companies.
Why RIVN Is a Good EV Stock to Buy
I find Rivian particularly appealing among its EV competitors for multiple reasons.
First, it has a strong balance sheet and held $12 billion as cash and cash equivalents at the end of March. Additionally, it has the backing of Amazon – its largest shareholder – which has placed an order for up to 100,000 delivery trucks with the company.
Rivian also has a strong product proposition, and its R1T pickup won MotorTrend's prestigious Truck of the Year 2022 award. MotorTrend was all praise for the model, and said, “Rivian re-examined what a modern pickup could be and the result is the most remarkable truck MotorTrend has ever driven, making it arguably the worthiest recipient of the ‘Golden Calipers’ in recent history.”
While many startup EV companies have struggled with execution, Rivian has done relatively better, and expects to produce 50,000 cars this year. It has already produced 23,387 vehicles in the first half of the year, despite a planned production outage, and I believe it is on track to exceed its guidance.
Finally, from a valuation perspective, RIVN trades at a forward price-to-sales multiple of 4.91x – which compares favorably with Lucid Motors’ 13.78x and Tesla’s 7.16x.
Wall Street Analysts Are Bullish on RIVN Stock
Wall Street analysts rate Rivian’s stock as a Moderate Buy, overall. Of the 19 analysts that cover RIVN, 9 rate it a Strong Buy, 3 a Moderate Buy, and 7 a Hold. While its mean target price of $25.84 is not too far removed from the current stock price, the Street-high target price of $40 implies expected upside of 54% from these levels.
As one point of caution, the recent rise in U.S. bond yields following Fitch’s downgrade of long-term US sovereign credit rating from AAA to AA+ is a negative for growth stocks like Rivian.
However, I believe RIVN stock is among the best ways to play the EV story.
NIO: One of the Best Chinese EV Stocks to Buy
NIO has also been quite volatile over the last three years. It survived a bankruptcy scare in 2020 and went on to rise over 1,100% that year. The stock crashed over the next two years, but has risen 50% in 2023 – though it still trades at a fraction of its 2021 highs.
Chinese EV stocks have been quite volatile in 2023 - and along with the company-specific risks, these companies also carry additional risks tied to U.S.-China tensions, which don't seem to be getting any better. Nevertheless, I believe NIO is still an attractive EV stock at these price levels.
First, China is looking to support private consumption, and earlier this year it extended the EV tax break until 2027 – a move that should further increase the country’s EV adoption, which is already the highest among major economies.
NIO seems to be getting its execution back on track, and delivered over 20,000 vehicles in July. The launch of new models and entry into new markets – especially in Europe – should help drive volumes in the medium to long term.
NIO Has a Strong Balance Sheet
NIO has built a strong brand in China, and also has the tacit backing of the government, which provided bailout funds in 2020 when the automaker seemed headed for bankruptcy.
The company has also recently secured funding of $738.5 million from CYVN Holdings, which is majority owned by the Abu Dhabi government – which I believe corroborates its position as an attractive long-term investment, and strengthens its balance sheet (which already carried $5.5 billion in cash and cash equivalents at the end of March).
As NIO’s delivery volumes increase and the cooldown in commodity prices – including those of battery metals – is reflected in its income statement, I believe gross margins will also expand. Analysts expect NIO to cut its losses by almost half in 2024, while increasing its sales by over 51%.
NIO’s valuation multiples appear reasonable, and its forward 12-month price-to-sales multiple of 2.65x is below both Xpeng Motors’ (XPEV) 2.95x and Li Auto’s (LI) 2.75x.
I believe an increase in margins and expansion of valuation multiples could catapult NIO higher in the medium to long term as EV adoption rises in China as well as globally, making it perhaps the best Chinese EV stock to buy at current levels.
On the date of publication, Mohit Oberoi had a position in: XPEV , RIVN , META . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
