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Electric vehicles (EVs) have become the car sector’s fastest growing segment, more than doubling last year to reach 6.8 million vehicles globally. This gives EVs a market share greater than 8%, triple where it stood in 2019, before the COVID pandemic. The market has found support from political policy, but more importantly, from improvements in battery technology and manufacture that are slowly making EVs more competitive on price.
The upshot is, EV companies are presenting investors with plenty of opportunities going forward. Automobiles are an essential of modern life, and EVs represent a high-growth leading edge for the industry, and one whose pace of growth is accelerating.
Against this backdrop, we’ve used the TipRanks platform to look up the details on two EV stocks that offer investors a hat-trick opportunity: a Buy rating from the Street’s analysts, triple-digit upside for the coming year, and a cost of entry below $5 per share. Let’s take a deep dive in and look at each of them along with the analyst commentary.
We’ll start with Xos, an EV maker that specializes in electric trucks. This is a turning into a particularly strong niche for EVs, as electric trucks can optimized for urban delivery routes, staying within a relatively short radius of their operating base and charging stations. It’s a mode of operation well-suited to ‘last mile’ delivery, and bypasses a major complaint that EVs are not capable of long-range ops. This is the environment that Xos has focused on.
Xos got its start in 2016, and is working on the design and manufacture of all-electric medium- and heavy-duty commercial vehicles, powertrain systems for those vehicles, and the charging infrastructure to support them. The company boasts a proprietary battery system, dubbed X-Pack, that fits along with a modular chassis, also proprietary, called the X-Platform. The company describes itself as ‘building an electric truck ecosystem for today.’
The company has been public for less than one year, having hit the public markets, on the NASDAQ index, in August 2021 through a SPAC transaction. The business combo, with the NextGen Acquisition Corporation, brought some $216 million in new capital to Xos. The company’s stock started trading at $9.20 and has fallen 76% since then.
Like many early-stage EV makers, Xos has only recently started generating considerable revenue. For 1Q22, the company’s top line reached $7 million, against a net loss of $21.2 million. The company saw a major increase in pre-order, totaling more than 350 in the quarter, and made important deliveries to big-name customers like UniFirst and FedEx. The FedEx deliveries included 15 vehicles to five ground operators in the Southern California region, and Xos now boasts a total of 550 outstanding orders to that delivery company. While Xos has been bleeding funds, it still retains a solid cash position of $129.7 million.
For Northland analyst Donovan Schafer all of this adds up to an EV company that worth a second look.
“While the initial forecasts back in 2020 were very aggressive — calling for a ramp that would hit ~2,000 vehicles in 2022 and ~9,000 vehicles in 2023 — the scaled down numbers in our model suggest the stock is attractively priced at these levels,” Schafer noted.
In another point, and one that bodes well for Xos as it works to ramp up production, Schafer adds, “XOS makes its own chassis, which means it is not subject to some of the chassis supply constraints being faced by peers. The net result is XOS just needs access to sheet metal for bending into the C-beams for making its chassis. This gets around the issue of chip shortages, which has impacted some of XOS's peers.”
All in all, this makes XOS stock, in Schafer’s view, worth an Outperform (i.e. Buy) rating, while his $5 price target implies ~133% upside potential for the next 12 months. (To watch Schafer’s track record, click here)
XOS shares have 3 recent analyst reviews on record and they are all positive, to support a Strong Buy consensus rating. The shares are selling for $2.15 and the $7 average price target suggests an upside of ~226% from that level. (See XOS stock forecast on TipRanks)
Lion Electric Company (LEV)
The next stock, Lion Electric, also focuses on the commercial-duty facet of the EV market. Lion has a line-up of 7 all-electric school buses and urban transit buses, marketed along with medium- and heavy-duty electric commercial trucks. Lion doesn’t stop with vehicles, however; the company also offers parts and services, charging station infrastructure, and purchase financing. Taken together, this makes Canada-based Lion one of the largest EV companies in the North American market.
As a point of differentiation from its competitors, Lion offers its products as turnkey solutions for its customers, with package deals that include driver and technician training. This approach has been especially successful in the school bus market, where school districts typically handle their own bus fleet maintenance.
Early in May, Lion released its 1Q22 results and showed strong gains in several important metrics. Key among them was a massive year-over-year increase in vehicle deliveries, from 24 in the first quarter of 2021 to 84 in the recent report. This 3.5x increase shows that Lion is making strides in increasing its production capabilities. The strong deliveries powered year-over-year revenue growth from $6.2 million to $22.6 million. With the increase in the top line, Lion saw its gross loss decline, from $1.8 million in the year-ago quarter to $900K as of the end of 1Q22. Looking forward, Lion can boast an order book with 2,422 vehicles on it, worth some $600 million.
Also at the end of Q1, Lion reported a solid balance sheet. The company had $155.5 million in cash and liquid assets on hand, and a revolving credit facility available up to $200 million. In addition, the company can rely on Canadian Federal and Quebec Provincial government support to the amount of C$100 million.
Roth Capital analyst Craig Irwin notes several points that suggest mid- to long-term gains for Lion EV, but first among those is the company’s strong position to benefit from US government subsidies and contracts.
“The $5 billion in EV School Bus funding in the Infrastructure Bill should provide a material tailwind for market activity in 2H22, and we expect initial voucher awards to be announced as soon as October 2022. The 2022 funding disbursement of $500 million opened on Friday May 20th, and will include funding up to $375,000 per bus, covering as much as all the cost of a new EV School Bus in a special district, or $250,000 per bus for other areas. At a minimum these Federal subsidies should bring costs to parity versus conventional diesel buses, while all the benefits from 60% lower maintenance and 80% lower fuel costs accrue to buyers,” Irwin explained.
To this end, Irwin stakes a bullish position on Lion, with a Buy rating and a $13 price target that implies a 174% upside potential over the coming months. (To watch Irwin’s track record, click here)
So, that’s Roth Capital's view, let’s turn our attention now to rest of the Street: LEV's 3 Buys and 2 Holds coalesce into a Moderate Buy rating. The $9.50 average price target suggests a one-year gain of ~101% from the current share price of $4.73. (See LEV stock forecast at TipRanks)
To find good ideas for EV stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.