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Last year, we saw the resurgence of fossil fuel consumption awareness. There was also the emergence of Environmental, Social and Governance (ESG) investing. That even gained popularity on Wall Street, especially when BlackRock (NYSE:BLK) announced its commitment to the theme. This lit a fire under electric car stocks, and today we are going to focus on three that are up over 250% this year. This is at least eight time better than the red-hot Nasdaq.
This green energy movement puts pressure on the internal combustion engine (ICE) and gives electric vehicles, or EVs, a much needed jolt of energy. Today’s stock are the ones most likely to be winners for the long term.
EVs have existed for over a century but have failed to gain much traction until one company bullied its way onto the scene. Now they are all the rage, especially among investors. There is even a wave of special purpose acquisition companies — SPACs — gobbling up upstart EVs companies that are even pre-earnings.
The prevailing assumption has shifted, and now consensus is that we will all be driving EVs in the future. You can see it even in Hollywood — anytime there’s a story setting in the future, they are driving electric cars. The 2020 crash in oil prices put a little life back into ICE because it’s hard to justify a complete global shift away from gasoline when it’s so cheap. At $100 or $70 per barrel it’d be so much easier to argue for switching to electric vehicles.
Nevertheless, there are also moral reasons to make the switch, including saving the planet. I bet the push to alternative fuels will keep a bid under electric car stocks for a long while. This trend won’t unwind anytime soon.
By reading the names of two of our three stocks today you’d get the impression that this is a tribute to the physics phenom Nikola Tesla, but today is about EVs and the future of electric car stocks. Our three are already household names and the first is a clear leader and by a mile. The other two show great promise in different stages of their pursuit efforts. They are:
- Tesla (NASDAQ:TSLA)
- Nio (NYSE:NIO)
- Nikola (NASDAQ:NKLA)
Electric Car stocks: Tesla (TSLA)
Source: Charts by TradingView
Tesla stock has been in ludicrous mode — pun intended — this year. Last week’s price action was simply astonishing. This June, the stock finally broke out from the $390 per share resistance and rallied over 400% from there. This is the team that paved the way for the rest of the electric car stocks to flourish. They did all the hard work and left the door wide open for the cohort.
This is not without its rewards. Tesla enjoys the first-mover advantage and complete loyalty from its clients, much like Apple (NASDAQ:AAPL) has from its users.
There is an added twist that puts Tesla stock a notch above the rest of the sector — it is not a one-trick pony. EVs will succeed better if the world also switches its home power generation to more eco-friendly methods. To that end, Tesla bought SolarCity in 2016 in its effort to become an integrated energy company. Furthermore it already had an electric home power system with slick solar roof tiles end panels. This is the argument that the Tesla fans have been suggesting for a while, and it may just be about to come to life.
The downfall of the stock’s popularity is its sticker price, but soon it will split five-to-one this month, so that even more people would be able to trade it.
It is important to note that a high sticker price doesn’t mean it’s expensive because it is not. Sure it has a scary price-to-earnings ratio in the 1,000 area, but its stock price is only 15 times its full year sales. The risk lies in the speed of the recent rise, because it made TSLA stock expensive relative to itself, which makes it hard to chase. For the time being, it makes for an excellent trading vehicle, but for the long-term this is a stock to own albeit from lower levels.
The only hitch in this plan is if Elon Musk somehow is no longer leading Tesla. It is possible that all of Tesla’s success is tied to him. People on Wall Street are enamored with him save for the stint during the “funding secured” debacle of 2018. But this is long in the rearview mirror of this car company, correction energy company, correction technology company.
Source: Charts by TradingView
This is basically a baby Tesla, because it has an established business in China and it’s trying to grow. It has a long way to go to catch up — and it may never will. But for now, it is an early mover, so it also has an advantage. What it lacks is Elon Musk — as mentioned, he could very well be the X factor behind Tesla’s popularity. People love his cars because they also like him. To his credit, he successfully made the shift to strong operational and financial performances.
Nio had its day in the news in the U.S. in 2018 when it appeared on primetime TV during an episode of 60 minutes. It has since overcome the resistance hurdle zone on the NIO stock chart from that event and is trying to establish it as support going forward. From an investment perspective, I can confidently say that if EVs succeed even more at replacing the incumbent ICE cars, then NIO will be part of the army that helps accomplish that.
The cars are slick and they grew vehicle sales over 140% year-over-year in the latest quarter. We are still talking small numbers relative to the larger car companies, but they are well on their way. The craze that is building up from the SPAC announcements like like Lordsman e-trucks recently will energize the Nio efforts too.
I’d rather chase an established sales pipeline because buying those speculative bets now would be betting on a new startup inside the risk of a budding industry.
This relative obscurity that NIO stock is now enjoying is a window of opportunity to accumulate a position. Soon investors will catch on and the sale on NIO stock would be over. The charts also agree, because positive setups are building there and could be flashing breakout signs.
Source: Charts by TradingView
Nikola is coming out of the gate in a high-profile manner. The spokesperson is flashy and exudes confidence when discussing his company’s goals and prospects on national TV. The company’s claim to fame so far has been the truck EV market but with a twist. They have a hybrid electric model with an element of hydrogen. It’s almost like their ultimate goal is the razor versus the razor blade model.
They recently got a high-profile order for $1 billion worth of garbage trucks that won’t require much development because they can simply retool existing chassis to eventually fill the order. While the details are still not set in stone, the order reinforces the concept. This is my favorite bet of the three today because of the stage it’s in and the global effort that it is mounting.
The stock recently collapsed into the earnings but then it bounced right back and erased all the losses. Since then the bulls are consolidating to further solidify the base. This is an important step for Nikola to earn more investor confidence. They need it because they are still in the development phase so every penny counts. My preferred method to place a bullish bet on NKLA stock is to sell Jan $20 puts and collect $2 for it. This way I can profit while leaving a 50% buffer margin of error and spending no money out of pocket.
Fossil fuels harm the environment, so this shift into greener power is important. Therefore electric car stocks are a viable investing theme for the long term. The EV is definitely eco-friendly and needs to replace the internal combustion engine.
Nicolas Chahine is the managing director of SellSpreads.com. Join his live chat room for free here. As of this writing, he did not hold a position in any of the aforementioned securities.
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