Everyone knows by now that traditional ICE vehicles are on the decline, quickly driven to obsolescence by electric vehicles (EVs).
According to Needham’s cleantech analyst Vikram Bagri, the adoption of electric vehicles is “faster than expected”. Realistically, this isn’t much of a shock given the macro background.
“The fundamental landscape for EVs is more constructive than ever with increased gas prices, government support and improved availability,” Bagri noted. “While we expect some short-term volatility as gas prices fluctuate, there is a regulatory and demand-driven path to electric vehicle adoption.”
By 2030, the predictions for EV penetration in the US from IEA, BCG and BNEF range between 44% and 53%. Individual OEMs expect much faster adoption, with many automakers setting their kits for 100% EV sales by 2030 or 2035.
Adoption offers plenty of opportunities for public companies operating in the space, and this translates into opportunities for investors.
Bagri and his team have assessed the prospects of several EV manufacturers and have – in their opinion – separated the industry from chaff. Let’s take a closer look at that.
Fisker Inc. (FSR)
Elon Musk may be the world’s most famous EV entrepreneur, but Henrik Fisker hopes to give Musk a run for his money. The Fisker co-founder (the company was founded with his wife Geeta Gupta-Fisker) and CEO has an enviable track record in the industry and has designed several luxury cars such as the Aston Martin DB9, BMW Z8, Aston Martin V8 Vantage and the VLF Force 1 V10, among others.
Fisker has shifted his focus to EVs. Founded in 2016, Fisker plans to take a share in the EV market by mass-producing vehicles that are not only reliable and affordable, but also built to last.
The first vehicle on the production line is the Fisker Ocean, an electric SUV (Sport Utility Vehicle). SUVs account for about half of passenger car sales in the US and EU, making the SUV market the largest segment in the passenger car category.
Official production will begin in mid-November and the car will be assembled by Magna, the automotive industry’s fourth largest supplier. After rolling 3.7 million vehicles off the production lines, Magna’s experience will come in handy, with Needham’s Bagri noting that “not only does this reduce execution risk and time to market, but also increase margins early in the year.” the cycle means.”
Competitively priced, with prices starting at $40,000, the Fisker Ocean is to be followed by the PEAR, which is expected to launch in 2H24 and have a lower price of $30,000.
Explaining why he sees a bright future for this industry player, he said: “FSR is entering the EV market with SUVs that feature cutting-edge technology at an affordable price, which represents a huge opportunity for the company. seeking to gain a dominant position without significant capital expenditure through contract manufacturing agreements with the largest and most reputable companies.”
“In addition,” the analyst continued, “the popularity of SUVs could make our estimates for FSR too conservative, as SUVs account for ~45% and >50% of total car sales in the EU and US, respectively. If ratios persist, ~10mm vehicles sold in the US and EU should be EV SUVs by 2030, bringing FSR’s share of the EV SUV market to ~5%.”
Accordingly, Bagri initiated coverage of FSR with a buy rating and a price target of $12, suggesting the stock could grow by 34% over the next year. (To view Bagri’s record, click here)
Overall, FSR has an average buy rating from the analyst consensus, based on 8 ratings breaking down to 5 buy, hold 2 and sell 1. The average price target is at $13.50, meaning stocks will rise 51% over the course of a year. (See FSR Inventory Forecast at TipRanks)
Rivian Automotive (RIVN)
Rivian made a big splash when he hit the public markets last November. Armed with a blockbuster IPO backed by Amazon and Ford, the company set up a stall to become a major competitor to EV king Tesla with the promise of high-end electric trucks and SUVs.
Late last year, Rivian unveiled its premium electric truck – the R1T – and later this year it should begin deliveries of the R1S, an SUV based on the same platform.
However, ramping up the production was a bit of a nightmare for Rivian. The company faced a plethora of manufacturing issues earlier this year, ranging from chip shortages to Covid-related issues to the rescheduling of vehicle lines. These impacted not only production but also investor sentiment.
Sentiment has been improving recently, while headwinds are also easing. In its July Q2 report, the EV maker showed it delivered 4,467 vehicles in the quarter, well above Street’s 3,500 expected deliveries. To further boost confidence, Rivian said it is still on track to meet its target of 25,000 production for the year. As of June 2022, the company had 98,000 total net reservations in the US and Canada for the R1 line.
With Rivian’s offering with the “performance of a sports car and ruggedness of a pickup”, Bagri thinks it has what it takes to attract early EV users who are “looking for something unique”.
From a purely investment perspective, however, there are too many issues at the moment that prevent the analyst from fully committing to this name.
“Valuation seems full… While RIVN is in a solid position, we believe competition will become fierce, profitability is still a long way off, manufacturing challenges remain and the company will need additional capital in 2024 and beyond will need,” explains Bagri.
To that end, Bagri’s coverage starts with a Hold (ie neutral) rating and no fixed price target in mind.
While 4 other analysts join Bagri on the sidelines and 1 recommends running for the hills, 8 other reviews are positive, all culminating in a consensus rating for a moderate buy. The average price target calls for an annual gain of 22%, considering the average price target is $49.15. (See RIVN stock forecast on TipRanks)
Lucid Group (LCID)
Tesla is now making another appearance with the introduction of Lucid. Aided by former Tesla engineer Peter Rawlinson, this EV maker is another company taking the crown from Musk and co. hopes to steal.
Lucid’s trump card is its Lucid Air electric sedan, which it touts as the “largest, fastest-charging luxury electric car in the world.”
That’s not just hyperbole. Rawlinson led the engineering of the Model S, but has improved its performance with the Lucid Air. The Tesla Model S has a range of 375 miles to 405 miles, but the entry-level Lucid Air Pure has a range of 406 miles, which climbs to a record-breaking official EPA range of 520 miles with the Lucid Air Dream Edition R.
The vehicle was widely acclaimed and won several awards, including MotorTrend’s 2021 ‘Car of the Year’ award.
So very promising. However, like many others, Lucid has been hit hard by the adverse macro conditions with supply chain and logistical issues affecting production individually. For example, the company hoped to produce 20,000 vehicles by 2022, but that was then reduced to about 13,000, which was further reduced to between 6,000-7,000.
In addition, it has been noted that the level of the Air’s software capabilities is not up to the standard of other EVs. This, along with other matters, informs Bagri’s bearish opinion.
“We Review LCID Underperform [i.e. Sell] due to sub-optimal software, potential manufacturing speed bumps and premium valuation. We believe that software development and production ramp could cause more problems due to company’s standout departures. We model production in ’23-24 to be ~20% below consensus. Finally, in our coverage, LCID is the company that needs the most outside capital and soon, which could create an overhang,” Bearish wrote.
Overall, the market’s current view of LCID is a mixed bag, indicating uncertainty about the outlook. The stock has a Hold analyst consensus based on 2 Buys and 1 Hold and Sell, each. However, the price target of $21.67 suggests upside potential of ~34% from the current stock price. (See LCID stock forecast at TipRanks)
Of the three EV names outlined in this piece, Wall Street expects the biggest gains from Fisker stocks in the coming year.
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Disclaimer: The opinions expressed in this article are those of the featured analyst only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.