It is not often that an entire industry is disrupted in one fell swoop, but that is what has happened to the once-stodgy auto industry. The desire by most countries to reduce their carbon footprints and halt climate change in its tracks means that we are witnessing the beginning of a multidecade vehicle replacement cycle.
According to a survey conducted late last year by KPMG, the average forecast of the more than 1,000 global auto leaders they spoke to was for worldwide electric vehicle sales to reach roughly 50% of all autos sold by 2030.
Although investing in EV growth looks like a no-brainer opportunity, not all stocks associated with the electrification of autos will be winners. There are two EV stocks that should be avoided because they are the plague.
Rivian automotive, which was one of the hottest initial public offerings of the year, looks like it has the tools to be successful. The R1T pickup truck, the R1S SUV, and the EDV electric van will be offered by the company, with annual capacity ranging from 200,000 to 400,000 at its Georgia plant. Rivian is spending $5 billion to build a factory. It is anticipated that production will begin by 2024.
Rivian received an order for 100,000 EDVs from Amazon in 2019. Rivian has been a player of interest in the EV space for years because of the sheer size of this order.
Rivian is still very wet behind the ears. The company had an IPO that had no sales for a year. It missed an already low production bar and will likely deal with the same supply chain constraints affecting the entire industry. Rivian is bound to hit many speed bumps and potholes. It is par for the course when building an EV company from the ground up.
Rivian is in hot water with the public after announcing a price hike on its quad- motor models, then walking back the hike for those who ordered before March 1. Higher material costs are making it harder for automakers to raise prices. While Rivian was following the pack, a $12,000 price hike on vehicles that already cost $70,000 did not sit well with customers. Rivian could price customers out of buying its vehicles.
Rivian has little business being valued at $45 billion and could eventually grow into an investment-worthy company in the EV space.
Before Rivian was the hottest thing in the EV space, Nikola was making waves. It was one of many companies that went public. On June 9, 2020, the share price of Nikola hit a high of nearly $94 a share. The shares were traded for $7 on March 3, 2022.
The introduction of the Badger in February 2020 was the initial buzz for the company. The Badger was to be a battery EV or fuel-cell EV pickup truck with an estimated 600-mile range and a $60,000 price tag. Wall Street was enamored with the company's potential when coupled with the ambitions to build BEV and FCEV semi trucks. The wheels fell off.
The Badger would be put down over the course of a year and a half. This was due to the fact that a manufacturing partner couldn't be found for the truck. The agreement between the two companies did not include the Badger.
There were a number of allegations of wrongdoing against Nikola that proved to be true. Pre-order figures were overstated according to an independent review. This resulted in a probe by the Securities and Exchange Commission, which led to the indictment of former CEO of the company.
The first BEV semi trucks will be delivered by the end of the day. Even though it has received a couple of letter-of-intent orders for its semi trucks, it is not clear if the company has the capital necessary to ramp up production and ward off significant quarterly losses. With its damaged reputation, it becomes an easy pass for investors.
Nio is a stock that checks all the appropriate boxes and can be bought immediately following its recent decline.
I had Nio in the same camp as Nikola a year ago. Avoid! Avoid! Nio was once valued at $90 billion and the company only had 20,000 EVs in production annually. Its valuation didn't make sense.
Management has been impressed with its ability to boost production. Nio was able to top 10,000 deliveries in both November and December despite the Chinese New Year holding back production. The company can hit 50,000 deliveries a month by the end of the year according to management. The annual run-rate would be around 600,000 EV.
Nio's existing line of electric vehicles and the introduction of three new vehicles are fueling this production surge. The company's premium SUVs and EV have received a lot of interest. The next wave of growth will come from the deliveries of the EV sedans that take direct aim at the Model S and Model 3. Nio claims an estimated range of over 600 miles for its sedans with the top-tier battery option.
The battery-as-a-service program that was unveiled in August 2020 is genius. The initial purchase price of a vehicle can be lowered by BaaS, and buyers can upgrade their batteries at a later date. Nio trades lower-margin near-term sales for high-margin fee-based revenue that keeps buyers loyal to the brand.
China is the world's largest auto market. Market share is up for grabs in the EV industry in China.
With Nio expected to turn the corner to recurring profitability next year, and the company valued at just seven times Wall Street's forecast earnings per share in 2024, it looks like a screaming buy.
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