Carmakers are focusing intensely on the EV industry as regulatory measures become stricter amid climate concerns, with many countries aiming to phase-out internal-combustion vehicles. The shares of Lucid Group (LCID) have gained recently despite the company’s weak fundamentals. So, we think they could witness a pullback in the near term. We also believe that the stocks of fundamentally strong EV companies NIO Inc. (NIO), XPeng Inc. (XPEV), Li Auto (LI), and Hyzon Motors (HYZN) are better bets than LCID now. So, let’s discuss.
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Concerns about climate change are causing carmakers to turn to electric vehicles (EVs). According to a Reuters study, carmakers plan to spend $515 billion over the next five to 10 years on developing battery-powered vehicles and financing the shift away from internal-combustion automobiles. Regulatory pressures on the industry are also powering this shift. Besides President Biden’s target of 50% of automobile sales to be EVs by 2030, countries including Sweden and Singapore are set to ban the sale of new combustion vehicles by 2030. As a result of these imperatives, the global EV market is expected to generate $812.89 billion by 2028, growing at a healthy 19.8% CAGR.
Last week, shares of EV start-up Lucid Group, Inc. (LCID) skyrocketed in price. The company’s market value increased to $89.9 billion following the stock’s 24% gain on November 16, after the announcement of increased reservations for its first vehicles. Company management also confirmed that its production plans for 2022 were still on track. However, the company’s fundamentals look weak. For its fiscal third quarter, ended September 30, LCID’s revenue decreased 30.5% year-over-year to $0.23 million. Its net loss and comprehensive loss increased 225.2% from the prior-year quarter to $524.40 million. Furthermore, Wall Street analysts expect a 12-month median price target of $44.33, indicating a 13.3% potential downside.
While LCID doesn’t look sufficiently fit to capitalize on the industry tailwinds, we think it could be wise to invest instead in the stocks of fundamentally strong EV companies NIO Inc. (NIO), XPeng Inc. (XPEV), Li Auto Inc. (LI), and Hyzon Motors Inc. (HYZN).
Click here to checkout our Electric Vehicle Industry Report for 2021
NIO Inc. (NIO)
NIO is a manufacturer and seller of smart electric vehicles in China. The Shanghai, China-based company offers electric SUVs, smart electric sedans and provides energy and service packages to customers.
On November 19, NIO announced that it had completed an at-the-market offering of American American Depositary Shares (ADSs). The company intends to use the $2 billion gross proceeds from the transaction to strengthen its balance sheet and for general corporate purposes.
For its third fiscal quarter, ended September 30, NIO’s total revenues increased 116.6% year-over-year to $1.52 billion. This can be attributed to a 102.4% rise in vehicle sales from the prior-year quarter to $1.34 billion. Its gross profit improved 240.2% from the same period last year to $309.33 million.
The consensus EPS estimate for the next quarter (ending March 2022) indicates a 49% year-over-year increase. Likewise, the $1.80 billion consensus revenue estimate for the current quarter reflects a 46% improvement from the prior-year quarter.
The stock has gained 21.8% in price over the past six months and 12.4% over the past three months to close yesterday’s trading session at $41.49.
Of the eight Wall Street analysts that rated NIO, seven have rated it Buy, while one has rated it Hold. The 12-month median price target of $57.13 indicates a 37.7% upside potential. The price targets range from a low of $45.00 to a high of $70.00.
XPeng Inc. (XPEV)
XPEV is the designer, developer, manufacturer, and seller of smart EVs in China. Its offerings include SUVs under the G3 name and a four-door sports sedan under the P7 name. The company is headquartered in Guangzhou, China.
On November 19, XPEV unveiled its new flagship smart SUV, which is designed for Chinese and international markets. The model, which comes with the company’s advanced software architecture and hardware platform, should add considerably to XPEV’s revenue stream.
In October, the company reported a set of important innovations, including an in-house developed advanced driver assistance program, design of a new generation road-capable flying car, super-charging technologies, and robotic innovations. These have the potential to enhance XPEV’s growth prospects.
XPEV’s total revenues increased 187.4% year-over-year to $887.72 million in its third fiscal quarter, ended September 30. This can be attributed to a 187.7% rise from the prior-year quarter in vehicle sales to $847.39 million. Its gross profit improved 796.7% from the same period last year to $127.39 million.
The Street EPS estimate for the current year (fiscal 2021) reflects a 35% year-over-year improvement. Likewise, the Street’s $3 billion revenue estimate for the current year indicates a 229.8% rise from the prior year.
Over the last six months, the stock has gained 65.8% in price to close yesterday’s trading session at $47.39. It has gained 22.5% over the past three months.
All six analysts rating XPEV have rated it Buy. The 12-month median price target of $63.00 indicates a 32.9% potential upside. The price targets range from a high of $87.00 to a low of $50.00.
Li Auto Inc. (AT THE)
LI operates as a designer, developer, and manufacturer of smart electric sport utility vehicles (SUVs) in China. Its offerings include Li ONE, a six-seat electric SUV. The company is headquartered in Beijing, China. LI began trading on The Stock Exchange of Hong Kong Limited (HKEX) in August.
On November 16, LI announced that its proposed resolutions were adopted at its general shareholders’ meeting. The resolutions propose a change in the company’s laws and allow directors to allot, issue, and deal with additional Class A ordinary shares or equivalents and a general mandate to repurchase the company’s shares.
The company plans to launch a full-size, extended-range electric SUV in 2022 and two other SUVs on its X platform in 2023. This is expected to enhance the company’s product portfolio.
LI’s total revenues increased 158.8% year-over-year to $780.44 million in its second fiscal quarter, ended June 30. Its gross profit rose 266.9% from the prior-year quarter to $147.57 million. Its cash, cash equivalents, and restricted cash came in at $2.14 billion, up 1,143.3% from the same period last year.
The Street’s $0.04 EPS estimate for the next year (fiscal 2022) reflects a 130.8% rise from the current year. Likewise, Street’s $6.34 billion revenue estimate for the coming year indicates a 65.9% year-over-year rise.
LI’s stock has gained 52.2% in price over the past six months to close yesterday’s trading session at $31.19. It has gained 9.2% over the last three months.
Of the seven Wall Street analysts that rated LI, six have rated it Buy, while one has rated it Hold. The 12-month median price target of $42.84 reflects a 37.4% upside potential. The price targets range from a low of $32.00 to a high of $51.50.
Hyzon Motors Inc. (HYZN)
HYZN, in Honeoye Falls, N.Y., operates as a hydrogen-mobility company that develops hydrogen-powered commercial vehicles, such as medium- and heavy-duty trucks and buses, and fuel cell systems. The company went public after a business combination between Hyzon Motors USA Inc. (formerly known as Hyzon Motors Inc.) Hyzon Motors Inc. (formerly known as Decarbonization Plus Acquisition Corporation), on July 19, 2021.
On November 9, HYZN announced the signing of a non-binding agreement with Japanese business group ITOCHU Corporation to jointly develop hydrogen supply chain strategies for deploying hydrogen fuel-celled vehicles and technology in the mining sector. The companies, through this collaboration, expect to pursue opportunities across several verticals, such as steelmaking, metal smelting, and refining.
On November 4, HYZN announced a joint demonstration project with Sha Steel Group subsidiary, Zhangjiagang Haili Terminal Co., Ltd. If the trial is successful, the parties expect to expand their business collaboration to step-up the implementation of hydrogen-based technology in the steel transportation industry.
HYZN’s revenue came in at $0.96 million in its third fiscal quarter, ended September 30. For the quarter, its net income and comprehensive income stood at $31.25 million and $31.05 million, respectively, up substantially from their negative year-ago values.
The Street expects HYZN’s revenue to improve 519.4% year-over-year in the next year to $182.48 million.
HYZN’s stock has gained 52.7% in price over the past month and 9% over the past five days to close yesterday’s trading session at $8.23.
Three of four analysts that rated HYZN have rated it Buy, while one has rated it Hold. The 12-month median price target of $13.75 indicates a 67.1% potential upside. The price targets range from a high of $18.00 to a low of $7.00.
Click here to checkout our Electric Vehicle Industry Report for 2021
NIO shares were trading at $41.70 per share on Tuesday morning, up $0.21 (+0.51%). Year-to-date, NIO has declined -14.44%, versus a 25.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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