Electric vehicle stocks rose higher in 2020, with investors enthusiastically entering the revolution that is disrupting the automotive industry.
The potential is real, but the actions seem to be moving ahead. Many of the companies that are rising rapidly have yet to generate any significant revenue, and even those that are selling products are being negotiated with non-automatic evaluations.
Some of these companies will turn into long-term success stories, but for the time being the actions seem frivolous. Here’s why three Fool.com employees are avoiding buying QuantumScape (NYSE: QS), Vehicles ElectraMeccanica (NASDAQ: SOLO)and Tesla (NASDAQ: TSLA) going to 2021.
Image source: Getty Images.
This battery stock is overheated
Lou Whiteman (QuantumScape): I am a current shareholder of QuantumScape, so it may seem strange to me to advise others to avoid it. Initial conclusion: I love the potential of this company, but I can’t even begin to justify the current assessment.
QuantumScape is developing a solid state lithium metal battery that, in theory, has many advantages over the lithium ion batteries currently in use. The solid-state battery, on paper, must be more stable and offer a higher energy density than the current generation of batteries. This means that it must be safer and offer more miles per load.
The company said recently that it believes it can make batteries that can be charged in just 10 minutes, which would make EVs more competitive compared to a fast-refueling internal combustion engine.
The potential is substantial, but there are many “ifs” for now. QuantumScape believes it will take five to seven years to launch its batteries on a large scale. And she is hardly alone in the search for technology, with Toyota Motors among competitors with large pockets.
QS data by YCharts
The point is that the market has already priced this potential. QuantumScape’s shares rose more than 400% in its six weeks as a publicly traded company, giving the company a market capitalization of more than $ 40 billion at the time of this writing. In comparison, market values Ford Motor and Fiat Chrysler Automobiles about $ 35 billion each.
Even if everything goes according to plan, I’m not sure if a battery manufacturer is worth this type of evaluation. And given the risk involved and the long term, there is no way to justify it today.
A month ago, you could justify buying QuantumScape as a small part of a diverse portfolio and then hoping for the best. But, after the recent gains, this is a stock for the radar screen, at best. The current price of QuantumScape’s shares is raised by a euphoria that I believe will hardly be maintained until the company sends the product. This company has great engineers, but they have not found a way to allow the actions to defy the laws of gravity forever.
This is not the Tesla fighter you are looking for
John Rosevear (ElectraMeccanica vehicles): I know there are people who love this stock, but I don’t. To be honest, when it comes to starting electric vehicles, ElectraMeccanica doesn’t have much to offer.
For those who may not have heard of ElectraMeccanica, it is a Canadian start-up that manufactures a small peculiar vehicle called Solo, a three-wheel, single-seat electric passenger vehicle. The Solo has a top speed of 80 miles per hour, a range of about 100 miles, and starts at $ 18,500. The company plans to use the funds raised by going public to build a factory in the United States, and is currently considering locations in Arizona and Tennessee.
Like a car, only smaller: the ElectraMeccanica Solo is not exactly a Tesla fighter. Image source: ElectraMeccanica vehicles.
It looks good, right? Wait. ElectraMeccanica shipped its first vehicles in the third quarter, but they were not for real customers. The company said the first batch of Solos will be used “specifically for high ROI activities, including press events, marketing, retail distribution, test drives, corporate and advertising purposes, as well as fleet demonstrations.”
ElectraMeccanica lost almost 15 million Canadian dollars in the last quarter, which is not much in the grand scheme of things – and not surprising, since it shipped its first products in the quarter – but it is three times more than it lost in the year. past. It is unclear when real revenue will begin to come in, let alone real profits.
The good news is that ElectraMeccanica had about CA $ 100 million in the bank at the end of the third quarter, so it can continue to walk for a while. But I don’t see anything here that justifies its current $ 520 million market capitalization – let alone a big increase next year. At least for now, I think automotive investors interested in electric vehicle stocks are better served by ignoring this one.
Tesla is a real auto company now. This is not necessarily good news for shareholders.
Rich Smith (Tesla): Given this, finding inventory of electric vehicles to avoid in 2021 seems almost too easy. After all, most of the hot names in the industry – NIO, QuantumScape, Electrameccanica – have no profits in your name and can never earn anything. In contrast, Tesla is the biggest kid in the electric block, with five consecutive quarters of positive earnings under generally accepted accounting principles (GAAP) and an excellent chance of reaching his goal of delivering 500,000 electric cars this year. Tesla is finally a viable and qualitatively better car company than any of the other EV actions cited.
So why am I choosing Tesla as my stock of electric vehicles to avoid in 2021? Precisely Because it has become a viable company – and can finally be valued as an established business, rather than just a “history stock”.
Think about it. What did Tesla have to do to be considered a “success” in 2020? The mere reporting of any positive GAAP gains in the first and second quarters of 2020 was already a sufficient improvement over its performance in the first and second quarters of 2019, when the company lost money. Earning a mere $ 0.27 per share in the third quarter of 2020 was enough to improve the $ 0.16 profit for the third quarter of 2019.
But now that Tesla have made profits in each quarter of 2020 (presumably made a profit of $ 0.68 per share in the fourth quarter, according to data from S&P Global Market Intelligence), and also increased its earnings sequentially, which Tesla will need to do in 2021 to be considered successful?
Logically, investors will want to see profits continue to grow, both sequentially and year after year. And yet, analysts predict that the company’s first 2021 quarterly report will show a slight decline in earnings from fourth-quarter levels. And each quarter thereafter will have the potential for Tesla to disappoint investors – earning less than in the previous quarter or simply growing less than expected year after year.
Perversely, in contrast to all the EV start-ups on the market today, now that Tesla is “a real company”, it will be judged by the standards generally applied to real auto companies like Ford and General Motors, which operates on single-digit profit margins and has single-digit P / L ratios in contrast to Tesla’s three-digit P / L. This, for me, makes Tesla one of the most risky stocks in the EV sector.