The electric vehicle (EV) market is one of the hottest industries to invest in at the moment. In the wake of the pandemic, the EV market is getting more electrified than ever. It has truly been a fateful year for EVs, with pure plays including Tesla, NIO and Workhorse Group registering triple-digit gains of 428.7%, 443.6% and 774.4%, respectively, year to date. There is an enormous amount of optimism and retail investors have been aggressively buying EV stocks, with seemingly no regard for valuation.With the eye-popping gains, the stocks' valuation has got out of hand.
If you want to bet on the greener mode of transportation but are concerned about the lofty valuations of EV stocks like Tesla and NIO, we have highlighted some bargain picks for you. But more importantly, there are many alternative ways to tap the EV frenzy. The not-so traditional options would be to invest in companies that are set to perform well in the booming EV market, no matter which automakers emerge as winners. These would include battery manufacturers, lithium players, etc. Let’s delve deeper to explore the different ways via which you can make the most out of this EV revolution.
Ride the EV Wave With Value Auto Picks
Indeed, legacy automakers like General Motors (GM - Free Report) and Ford (F - Free Report) aren't just sitting idle and watching the EV companies take over the auto industry. Both these companies sport a Zacks Rank #1 (Strong Buy) and are attractively valued compared with the broader industry.You can see the complete list of today’s Zacks #1 Rank stocks here.
Both the firms are doing a commendable job to revolutionize the EV space.General Motors’ partnerships with Honda HMC, EVgo, Nikola and Uber display its ability to aggressively compete with established EV players and showcase its commitment to an electric future. Meanwhile, Ford committed to spend more than $11.5 billion in EVs through 2022 by introducing zero-emission versions of some of the company’s popular vehicles.
Say Yes to Battery Makers
With batteries being the most crucial component of a green vehicle, the overall cost, performance and driving range of an electric car depends mostly on the same. With electric car revolution set to take off in a big way, the battery industry is bound to witness exponential growth in the coming years.
As we know, Panasonic is one of the key players in the development of next-generation batteries for green vehicles. Expansive research and cutting edge technology, along with its long-standing partnership with Tesla to supply batteries for Model 3 vehicles are boosting Panasonic’s prospects. Other battery manufacturers that should be on your radar include Pennsylvania-based EnerSys (ENS - Free Report) and China-based Byd Co., Ltd, both of which carry a Zacks Rank #2 (Buy) currently.
Lookout for Lithium Miners
You can consider going one step down the supply chain and invest in lithium stocks. Importantly, more than 50% of all the lithium produced is deployed in rechargeable batteries and the figure is expected to increase on the back of widespread adoption of green vehicles.According to Allied Market Research, the global Lithium-ion battery market was valued at $36.7 billion in 2019 and is projected to hit $129.3 billion by 2027, at a CAGR of 18.0% from 2020 to 2027.
Chief lithium players that should be on your watchlist include Albemarle Corp. (ALB - Free Report) , Livent Corporation and Piedmont Lithium, each presently carrying a Zacks Rank #3 (Hold). Piedmont recently entered into a five-year binding sales agreement with Tesla in a bid to expand the latter’s battery production capacity. Rise in battery manufacturing and volumes is expected to be key catalysts for future growth of Livent, Albemarle and Piedmont.
Take Note of Auto Power Parts Suppliers
Investors can capitalize on the rosy EV market prospects by investing in firms that provide automakers with power solutions. Some stocks worth betting on include BorgWarner (BWA - Free Report) , Magna International and Valeo S.A. While Magna currently sports a Zacks Rank #1, BorgWarner and Valeo presently carry a Zacks Rank #2. Valeo, BorgWarner and Magna have an expected EPS growth rate of 34.8%, 6.4% and 4.3%, respectively, for the next three-five years. The companies are focused on innovation and technology development, and expect that hybrid and electric technologies will bolster their top line, going forward. Electrification programs are likely to drive the firms’ backlog.
Thumbs Up to Semiconductor Stocks
Semiconductors advancements have far-reaching benefits for the EV industry and are directly responsible for improvement in the battery efficiency of green vehicles. They have the potential of extending an EV’s battery life. Technology is changing the dynamics of the auto industry and semiconductors are at the heart of technology. Importantly, the average amount of semiconductor components in an electric vehicle has been increasing rapidly. As a matter of fact, the more technologically advanced the EV, the more semiconductors it requires. So basically, chips matter when it comes to EVs and investors can play the EV revolution with semiconductor stocks as well.
A few top-ranked semiconductor stocks include NXP Semiconductors N.V. and STMicroelectronics N.V. While the former sports a Zacks Rank #1, the latter carries a Zacks Rank #2 at present. Intel (INTC - Free Report) — the world’s largest semiconductor company — also has a hand in the e-mobility future, from supplying processors for fast EV charging to the field-programmable gate arrays to address powertrain control. The firm carries a Zacks Rank #3 at present.
Track the SPACs
Special purpose acquisition companies (SPACs), often dubbed as blank-check companies, are flourishing. Many EV makers have chosen to go public this year via reverse mergers with SPACs. Nikola, Hyliion, Canoo and Lordstown Motors took the SPAC route for IPOs this year by merging with VectorIQ, Tortoise Acquisition Corp., Hennessy Capital Acquisition Corp. and DiamondPeak Holdings Corp., respectively.
If you want to bet on the thriving EV industry by investing in SPACs, Kensington Capital Acquisition Corp., Switchback Energy Acquisition Corp. and Spartan Energy Acquisition Corp. are worth a look. Notably, QuantumScape is releasing its shares to the public by merging with Kensington. The deal is expected to close by 2020-end. QuantumScape is driving the innovative curve for the next cutting-edge batteries. The Bill Gates-backed EV battery supplier is developing the next generation of batteries utilizing lithium metal, which has a significantly higher energy density than lithium-ion.
EV charging stalwart ChargePoint is also taking the SPAC route to go public as it plans to merge with Switchback. ChargePoint’s revenue prospects look rosy as the firm is the largest EV charging network in the world and is poised to grow amid the increasing needs of the global electric transport market. Spartan Energy is soon set to bring Fisker public via a reverse merger. Many industry watchers believe that Fisker is going to give a tough competition to EV startups on the back of its software advancements and relative affordability of its vehicles. Volkswagen has partnered with Fisker to deploy its modular electric-drive matrix platform into Fisker’s upcoming sports utility vehicles (SUVs) including Ocean SUV.
How About Betting on EV ETFs?
You can also opt for a diversified play across the sector by investing in exchange traded funds (ETFs) that track EVs. In past two years, there has been a surge in the launch of such ETFs, with which investors can tap this burgeoning industry. Key EV ETFs include:
Global X Autonomous & Electric Vehicles ETF (DRIV - Free Report) : This fund gives exposure to companies involved in the development of driverless and e-mobility technology, along with EV components as well as materials. Tech giants like Alphabet and Microsoft, red hot EV maker Tesla, along with Japan-based auto biggie Toyota are some of the key holdings of the DRIV fund.
Global X Lithium & Battery Tech ETF: Some of the key holdings of this fund — which tracks litium suppliers and battery companies — include Albemarle Corp, BYD Co. Ltd, Tesla and LG Chem Ltd.
KraneShares Electric Vehicles and Future Mobility Index ETF: Legacy automakers like Volkswagen, Daimler AG and BMW AG; chip maker NVIDIA Corp; as well as EV pure plays like NIO and Tesla are some of the top holdings of the fund.
The First Trust NASDAQ Clean Edge Green Energy Index Fund, Innovation Shares NextGen Vehicles & Technology ETF, SPDR S&P Kensho Smart Mobility ETF are a few other ETFs for gaining wider exposure in the EV era.
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