The electric vehicle (EV) market has taken the market by storm over the past year, with the world of finance looking to the future more than ever. Companies like Tesla and Chinese EV giant Nio have seen outrageous high triple-digit to 4-digit percentage returns since the March lows.
Analysts and investors are putting much more value on the opaque sales projections 5+ years out with the ultra-low interest-rate environment, which have significantly dropped the denominator in long-term valuation models. The markets are pricing in a much greener world in the not-too-distant future where autonomous EV's rule the road.
Now every automaker and its subsidiaries are scrambling to catch up to the mounting EV competition as the future of traditional combustion engines looks increasingly antiquated.
Automotive Giants Make Their Moves
Ford's new CEO, Jim Farley, is eager to prove himself as a forward-thinking leader. He has vowed to spend $22 billion on smart EVs and an additional $7 billion in autonomous driving over the next 5 years.
GM's CEO, Mary Barra, has pivoted the automotive powerhouse's focus from operational excellence to enhancing its technological positioning in this space last year. Cruise, GM's self-driving car subsidiary, has just teamed up with Walmart & Microsoft, who just invested an additional $2.75 billion & $2 billion, respectively, valuing the company at $30 billion.
Cruise's recent partnership with Microsoft is strategically beneficial to both parties. Cruise gets Microsoft's cutting-edge cloud-computing capabilities with Azure and its best-in-class functionality. Microsoft receives exposure to the nascent space of autonomous transportation, which is still in its early development stages.
Volkswagen may be Tesla's biggest competitor in the coming year, with the business projecting to produce 1 million EVs annually by 2023 and 1.5 by 2025. Tesla announced that it plans to deliver between 840,000 to 1 million vehicles in 2021, giving the EV giant approximately 20% of the EV market.
VW has been the largest investor in electric vehicle technology out of all the global automakers, with roughly 20% of its annual sales being pledged to EVs' development over the next 5 years ($41 billion in total). VW has a sizable investment and joint venture with QuantumScape, the battery enterprise that is poised to change the world.
Ford, GM, and Volkswagen have all soared since their COVID lows in March, with returns all deep in the triple-digit percentages. Investors are buying up these now market cap laggards to Tesla and even Nio, as the legacy auto conglomerates take giant steps to ensure their presence in the future of consumer transportation.
The Apple Car
Apple, the consumers' champion of technological innovation as well as the largest publicly traded enterprise, isn't missing out on the action either. With its $100+ billion in liquidity and $10s of billions in reliable free-cash-flow, there is no question that Apple has the capital to start its own car division, but whether it will be a profitable venture remains to be seen.
Apple's EV project has been years in the making and is expected to start production in 2024. Apple is rumored to be partnering with Hyundai-Kia for the manufacturing of these vehicles. Partnering with an established auto-manufacturer is necessary for Apple to achieve the economies scale required to be competitive in the quickly saturating EV space.
I can only imagine that the Apple Car will be just as cutting-edge as its other consumer products, but this means significant upfront costs for the company in the coming years.
Continued . . .
Notice: Entry Ending to Newest Zacks Strategy
Time’s running out to see stocks with strong fundamentals and earnings estimate revisions just as they’re ignited by developments in the news.
Headline Trader has been closed to new investors since February when it was launched. Today it has been temporarily reopened. A new EV recommendation with tremendous upside will be posted Monday morning and you can be among the first to see it.
Rewards can be quick and sometimes very substantial. Zacks stock-picking phenom Daniel Laboe previously used this approach to catch jumps like Tesla’s +810.0% in 13 months … Target’s +95.0% in 17 months ... QuantumScape’s +224.3% in 3 months … Sea Limited’s +413.6% in 1 year … and Micro Strategy’s +93.9% in 6 weeks.¹
Deadline for access (no extensions): Sunday, May 9
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The Wonderful World of EV SPACs
Tesla isn't the only automotive unicorn startup with market-disrupting aspirations. Companies like Nikola, QuantumScape, and now Lucid Motors (rumored to be making a deal to go public with Churchill Capital IV).
Nikola put a bad taste in investors' mouths for unicorn alt energy automakers with the rise and fall of its share price and fraud allegations. Still, traders seem to have an insatiable thirst for putting on risk as of late, and Lucid Motors, a fresh up-scale EV company, looks to be a recent SPAC target.
It is rumored that Lucid CEO, Peter Rawlinson, is in talks with Churchill Capital to bring the business to the public markets. These rumors have turned Churchill into something of a gambling tool, with the SPAC soaring over 500% from the beginning of 2021 to its highs in February, but has since fallen off a cliff as the market euphoria subsides. Even if this deal does occur, I fear that Lucid is facing an uphill battle. They face a rapidly saturating industry with better-capitalized businesses, achieving much higher economies of scale, that have unparalleled technology. Lucid's competitive advantage evades me.
This unicorn startup, backed by VW and Bill Gates, is another recent SPAC IPO in the EV space. They have been all over the board since brought to the public markets last fall, and I have been waiting for a buying opportunity. It has been a rollercoaster of a ride, driving up over 800% at the end of 2020, and subsequently falling to a more equitable level, where it sits today.
QuantumScape is driving the innovative curve for the next cutting-edge batteries, the heart and soul of the electric vehicle space. 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.
This forward-looking battery powerhouse is driving the EV revolution, and mass-market adaptation is in QuantumScape's sights. Leveraging lithium-metal technology, the company hopes to achieve ranges of 300 miles or more, hyper-fast charging (less than 15 minutes), cheap vehicles (less than $30k), and extended battery life (more than 150,000 miles).
QuantumScape sees the entire automotive industry as its total addressable market at more than $450 billion in potential battery demand. Society is undoubtedly headed toward a world that runs on electricity, but it may take a decade before mass adaptation in the automotive world is feasible.
There is an enormous amount of uncertainty surrounding this next-generation battery enterprise, considering they are just in the product development stage. Still, the markets are optimistic about this business's future, with a current valuation of $14.5 billion, way beyond analysts' initial estimates.
According to the company’s 8-year plan, it doesn't expect to generate revenue until 2024 and won't be able to drive positive free-cash-flows until 2028. The automotive giant Volkswagen is the primary shareholder, giving investors confidence in the business's legitimacy.
Time to Juice Your Portfolio
According to IHS Markit, there were nearly 2.5 million EVs sold in 2020 globally, and they have anticipated these sales to soar by 70% in 2021. The IHS is giving EVs a compounded annual growth rate of 53% through 2025, representing 12.2 million annual EVs or 12.2% of the projected global market.
No one wants to be left behind during this massive growth narrative or left holding only the combustion engine when that technology becomes obsolete or, worse: illegal. The world of cars is unquestionably headed towards autonomous electric technology. Now it is time to figure out how you would like to place your bets.
My #1 EV Stock for Today
Monday morning I’m posting this stock with extremely high upside in Zacks’ newest portfolio, Headline Trader.
You can be first to see it (and you might be surprised). This is your chance to get in before a potential ripple of buying after the pick is announced.
As director of the portfolio, I constantly monitor stocks like this with strong fundamentals and rising earnings estimates. The key is to watch for the first stirring of movement, checking headlines and upcoming events.
With vaccines in full-blown rollout and pent-up economic demand only starting to unleash, this is truly an exceptional time to profit from positive news. Using the same approach that Headline Trader is built around, I’ve been able to follow breaking developments to multiple big winners. Here are five examples of my news-based stock recommendations:¹
• Tesla’s +810.0% leap. My article, Tesla, the Year It Finally Meets Management Goals included a recommendation which gave readers the profit from that explosive growth.
• Target’s +95.0% burst was our answer to Who Will Survive the Retail Apocalypse?
• Sea Limited’s ridiculous +413.6% gain could have been shared (along with 4 other soon-to-be stock winners) by readers of The FAANG of the Roaring 20’s.
• Goldman Sachs’ quick +53.8% jump could have been bagged by readers of Election Day Rally.
• Taiwan Semiconductor’s +136.2% boom was presaged by Largest Contracted Chip Manufacturer Set to Open Plant in Arizona.
We can also profit by shorting stocks affected by bad news, so this portfolio can make money no matter which way the markets are heading.
Bonus: Another reason to look into our portfolio right away is that you can download Zacks’ Special Report, How to Profit from Trillions in Spending for Infrastructure – free of charge. This is a trend that will surely be hot in the financial world for months and years to come. Discover 7 stocks that stand to benefit the most from literally trillions to be spent.
Deadline for Entry Is at Hand
Please note that due to excessive demand, the number of investors who view our Headline Trader stock picks must be limited. The deadline for access is midnight Sunday, May 9. Sorry, there will be no extensions.
Check out Zacks’ Headline Trader right now >>
Daniel has expertise in technical trading, corporate finance, and the monitoring and interpretation of breaking news. As editor of our newest portfolio, he invites you to try Zacks Headline Trader.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.