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Is it still worth buying these 3 electric car stocks? Analyst weighs
Electric cars are growing in popularity, a trend fueled by social acceptance, the green mindset and the recognition that the internal combustion engine has its flaws. Some of these failures are handled by electric vehicles (EVs). They bring less emissions, less car pollution and the promise of high performance. At the moment, the main disadvantages are the high cost and relatively short range of current battery technology. Even so, many consumers have decided that the benefits outweigh the costs and EV sales are increasing. China, in particular, is known for its pollution and smog problems, and the government is actively promoting EVs as a possible improvement factor. In addition, EVs, with their fast acceleration and (usually) short range, fit perfectly into China’s crowded – and growing – urban centers. In a comprehensive analysis of China’s EV sector, Jefferies analyst Alexious Lee noted: “We are constructive about the prospects for NEV in China, as the country moves forward with the ‘electrification for digitization’ trend. Global automakers are rapidly launching New energy-saving vehicle models (HEVs and PHEVs) to meet the top-down goal of reducing the annual Average Corporate Fuel Consumption (CAFC), Chinese automakers (both legacy and startups) are motivated to quickly accelerate the adoption of BEV with entry level, urban transport models and advanced models with premium position. “In this context, Lee chose a Chinese EV action that is worth having and two that investors should avoid for now. We used the TipRanks database to find out what other Wall Street analysts have to say about the prospects for these three. Li Auto (LI) Chinese EV company Li Auto is proud to have the only best-selling electric vehicle model in the country. Li ONE sold 3,700 units last October, bringing the total number of sales in the first year of production to 22,000. With current sales and production rates, Li expects the company to double its number of annual sales this year. This is big business, in the largest electric car market in the world. China produces more than half of all EVs sold globally and almost all electric buses. Li Auto, founded in 2015, has focused on plug-in hybrids – models that can be connected to a charging station to maintain the battery, but also have a combustion engine to compensate for low-density charging networks. The Li ONE is a full-size hybrid electric SUV that quickly found popularity in its market. Li Auto went public on NASDAQ in July 2020. At the IPO, the company started with a share price of $ 11.50 and closed the first day with a 40% gain. In the following months, LI increased by 116%. These stock gains come as the company reported strong profits. In 3Q20, reported in the last quarter, LI recorded sales of US $ 363 million, an increase of 28% sequentially, and forming the majority of the company’s total revenue of US $ 369.8 million. Also positive, Li reported a 149% sequential increase in free cash flow, to $ 110.4 million. Lee is impressed by Li Auto’s technology, noting: “Li One’s EREV power train proved to be a huge success due to (1) extended reach, (2) limited low temperature impact, (3) easier acceptance by car buyers. The advantage is sustainable ahead of the battery cost parity, estimated at FY25 (LFP) and FY27 (NMC), making LI AUTO the automaker to make OCF positive and profitable before its peers. “The analyst added:” LI AUTO is the first in China to successfully market the long-range electric vehicle (EREV), which is the solution to the drivers ‘distance anxiety and the automakers’ high BOM. Powered by fuel, the ER system provides an alternative source of electricity in addition to batteries, which stands out significantly in low temperature environments, where BEVs can lose up to 50% of the printed range. “Seeing the company’s technology as the main attraction for customers and investors, Lee started his LI coverage with a Buy rating and a target price of $ 44.50. This figure implies a 25% increase in growth the following year (To view Lee’s history, click here) There is broad agreement on Wall Street with Lee that this stock is a proposed purchase. LI shares have a strong buy consensus rating, based on 6 reviews, including 5 purchases and 1 wait. The shares are quoted at $ 35.60 and the average price of $ 44.18 is in line with Lee’s, suggesting a 24% increase in the next 12 months. (See LI stock analysis at TipRanks) Nio (NIO) Where Li Auto has the only best-selling EV model in China, competing company Nio is competing with Elon Musk’s Tesla for first place market share in the Chinese EV market. $ 90 billion, Nio is China’s largest domestic electric car manufacturer. The company has a wide range of products, including SUVs with a lithium-ion battery and a water-cooled electric sports car. Two sedans and a minivan are on the drawing boards for future launch. Meanwhile, Nio’s vehicles are popular. The company recorded 43,728 vehicle deliveries in 2020, more than double the number for 2019, and in the last five months of the year, car deliveries have increased for 5 consecutive months. December deliveries exceeded 7,000 vehicles. Nio’s revenues have increased steadily and showed significant gains in the annual comparison in the second and third quarters of 2020. In the second quarter, the gain was 137%; in the third quarter, it was 150%. In absolute numbers, third quarter revenue reached US $ 654 million. However, with stocks rising 1016% in the past 52 weeks, there is little room for further growth – at least according to Lee de Jefferies. The analyst started NIO coverage with a Hold rating and a target price of $ 60. This figure implies a modest 3% increase. “We use the DCF method to evaluate the NIO. In our DCF model, we consider the growth of solid volume, positive net profit of FY24 and positive FCF of FY23. We apply a WACC of 8.1% and a terminal growth rate of 5% and we reached the $ 60 price target, “explained Lee. Overall, Nio has a moderate analyst consensus purchase rating, with 13 reviews recorded, including 7 purchases and 6 holds. The NIO is being sold for $ 57.71, and recent stock gains have pushed that price slightly below the average price target of $ 57.79. (See Nio’s stock analysis at TipRanks) XPeng, Inc. (XPEV) XPeng is another company, like Li, at the average price level of the Chinese electric car market. The company has two models in production, the G3 SUV and the P7 sedan. Both are long-range EV models, capable of driving 500 to 700 kilometers on a single charge, and have advanced autopilot systems for driver assistance. The G3 started deliveries in December 2018; to P7 in June 2020. In another comparison with Li Auto, XPeng also went public in the United States markets in the summer of 2020. The stock debuted on the NYSE on the last day of August, at a price of $ 23.10 , and in the IPO the company raised US $ 1.5 billion. Since the IPO, shares have risen 127% and the company has reached a market value of $ 37.4 billion. The increase in sales is behind the gains in participation. XPeng reported 8,578 vehicles delivered in the third quarter of 2020, a 265% gain over the previous year’s quarter. Most of these deliveries were P7 sedans – the model saw deliveries jump from 325 in the second quarter to 6,210 in the third quarter. Strong sales translated into revenues of $ 310 million in the quarter, a truly impressive 342% gain. Lee, from Jefferies, sees XPeng as a well-positioned company that possibly maximized its short-term growth. He writes: “XPENG has a very strong exposure to technology-driven growth … While we favor its expertise in autonomous driving and energy efficiency, our FY21 forecast of 120% sales growth is below consensus, while our FY22 forecast of 129% is higher given the slower market acceptance and increased competition in the Rmb200-300K segment. To this end, Lee values XPEV a Hold and its target price of $ 54.40 suggests a slight increase of ~ 4%. The recent gains in XPEV pushed the price just above the average price target of $ 51.25; the stock is now selling for $ 52.46. This comes along with a moderate purchase analyst consensus rating, based on 8 reviews, divided into 5 purchases, 2 retentions and 1 sale. (See TipRanks XPEV stock analysis) To find good ideas for trading EV shares for attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all TipRanks stock insights. Disclaimer: The opinions expressed in this article are exclusively those of the analyst presented. The content should be used for informational purposes only. It is very important to do your own analysis before making any investments.