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The electric vehicle (EV) market is currently in flux, as industrywide price cuts - intended to counter declining demand - have triggered an all-out price war that impacted profitability and strained profit margins. Additionally, the EU has imposed tariffs on Chinese EV exports to combat competition from heavily state-subsidized Chinese manufacturers.
Despite these hurdles, the EV market remains highly competitive, with only the most innovative and best-selling companies likely to thrive. The market is poised for significant growth over the next decade as global economies transition to greener energy solutions. Further, the Biden administration aims to grant around $2 billion to accelerate domestic manufacturing of electric vehicles and assembly sites in eight states. This investment will help the industry scale up production, enhance supply chain resilience, and strengthen the U.S. position in the global electric vehicle market.
Optimism for lower interest rates should also play a pivotal role, easing investment in innovation for companies and making EV financing more accessible for consumers. With nearly 20% of cars worldwide now electric and major governments setting ambitious EV targets, the industry is poised for explosive growth.
Investors who can identify the right companies to invest in this dynamic sector can expect lucrative returns in the future. Here are three to consider now.
#1. BYD
Based in Shenzhen, BYD (BYDDY) is a leading global manufacturer of electric and hybrid vehicles. The company's commitment to sustainability, green energy solutions, and advanced engineering shines through its extensive range of EVs. These vehicles utilize proprietary lithium iron phosphate (LFP) battery technology, ensuring enhanced safety, longevity, and performance.
Valued at $91 billion by market cap, BYD stock is up by 12.3% year to date, pacing behind the S&P 500 Index's ($SPX) gain of 15.4%. The shares are currently trading at a price/sales ratio of 0.89, about 13% below the sector median, indicating that BYDDY is reasonably priced at current levels.
In Q1 2024, BYD delivered an impressive 301,631 vehicles, marking a 13% jump year over year. Out of this, 139,902 were pure battery vehicles, a clear indication of the company's commitment to green energy solutions and sustainable transportation.
BYD continued to impress analysts with its Q2 performance, delivering 426,039 vehicles, a 21% increase from the year-ago quarter. The company has narrowed the gap with Tesla (TSLA) on deliveries to just about 18,000 vehicles.
Moreover, BYD's gross margin is currently 21%, significantly higher than most of its peers in the industry. This shows its ability to maintain high production standards and control expenses within volatile market situation.
Beyond impressive delivery figures, BYD continues to attract attention with its offerings, including a flagship truck, the "Shark." Additionally, the EV company is set to release an EV called Seagull at a very affordable price, masterfully integrating advanced features and cost-effectiveness.
All seven Wall Street analysts in coverage have given BYD stock a unanimous "strong buy" rating, with a mean price target of $72. This indicates a 16% upside potential from the current price. So, there's a lot to cheer about for BYD stock this year.
#2. Tesla
Based in Austin, Tesla (TSLA) is one of the largest electric vehicle manufacturers in the world. The company has achieved this status through its significant production capacity, extensive global sales, and widespread brand recognition.
Tesla's models, such as the Model S, Model 3, Model X, and Model Y, have consistently topped sales charts in various markets, contributing to its dominance in the EV sector. The company's innovative technology, including advanced battery systems and autonomous driving features, has also set it apart from competitors. TSLA currently commands a market cap of $794.8 billion, and is rapidly moving toward achieving the trillion-dollar mark once again after first achieving this milestone in 2021.
Despite facing turbulence in the early months of 2024, Tesla stock has bounced back, gaining more than 62% in the past three months - and easily outperforming the broader market in the same time period. The main factor behind this surge was Tesla's Q2 delivery figures, which exceeded expectations.
On April 23, Tesla reported its Q1 earnings, which fell short of expectations on the top and bottom lines due to operational challenges. These hurdles included geopolitical tensions and production disruptions at Gigafactory Berlin following an arson attack.
However, it wasn't all negative news for Tesla's Q1 performance. The company delivered approximately 387,000 vehicles, surpassing expectations. The bulk of these deliveries were Model 3/Y, totaling 369,783 units. Additionally, combined deliveries of Model S and Model X reached 17,027. This demonstrates that Tesla is well-positioned to meet its delivery targets despite supply challenges.
For Q2, the company delivered a stronger-than-forecast 443,956 vehicles in total, and also started to unwind some of its built-up inventory of unsold vehicles.
Recently, good news came from China, with reports indicating that Tesla's name had been added to a government procurement list in China's Jiangsu province for the first time. This inclusion allows Chinese public organizations to use Tesla EVs, overcoming previous restrictions due to data privacy concerns.
Two more major catalysts for Tesla's growth are robotaxis and its full self-driving (FSD) technology, which hold immense potential for the company's future. The robotaxi launch has been delayed to allow for more time to build prototypes; meanwhile, Tesla is already testing the FSD V12.5 feature, which will soon be enabled in Cybertrucks and other models.
Furthermore, Global Equities Research analysts just raised their price target for Tesla from $340 to $400, and maintained their "overweight" rating on the stock.
On the other hand, a consensus of Wall Street analysts have taken a cautious stance on Tesla stock, giving it a "hold" rating, with a mean price target of $193.91. Despite the ongoing financial challenges, I believe that Tesla is a fantastic company with many growth drivers in its portfolio that could turn the tables anytime and produce long-term gains.
#3. Rivian
Based in California, Rivian (RIVN) is a prominent EV manufacturing company that is redefining the future of adventure and sustainable transportation. The characteristics that distinguish Rivian from its peers are its holistic approach to vehicle design, its integration of advanced battery technology and autonomous driving features, and its focus on sustainability throughout its operations.
The company's portfolio has a unique lineup of all-electric adventure vehicles, including the R1T pickup truck and the R1S SUV, both designed for exceptional off-road capability and on-road performance. Rivian currently has a market cap of around $16.8 billion.
Like other EV companies, Rivian stock has also run off the road over the past year, plummeting by 28.6%. However, in the last three months, the stock has rebounded impressively, gaining 94%, triggered by solid delivery growth and a key partnership.
In Q2, Rivian impressively delivered 13,790 vehicles, surpassing expectations. Moreover, the company announced a production target of 57,000 vehicles for the full year 2024. The strong Q2 deliveries and ambitious annual target suggest that Rivian is successfully navigating supply chain challenges and increasing its market presence, which bodes well for its future growth and competitiveness in the electric vehicle industry.
On June 25, Rivian and Volkswagen (VWAGY) together announced a partnership to develop next-generation software-defined vehicle (SDV) platforms for their future electric vehicles. Volkswagen will initially invest $1 billion in Rivian, with plans for an additional investment of up to $4 billion, bringing the total expected deal size to $5 billion. This will help Rivian improve its cash flow position and reduce losses.
Analysts are quite optimistic about Rivian's stock prospects, and Mizuho analyst Rakesh Vijay has raised the stock's price target from $11 to $15. Overall, Wall Street has assigned Rivian a "moderate buy" rating, with a mean price target of $18.27. This suggests the stock has about 10% upside potential.
