Despite 2020 being an unprecedented year due to the pandemic, it will also be remembered as the year for the EV revolution. While EV companies, led by Tesla Inc (NASDAQ: TSLA), have been around for a while, 2020 was the year the markets officially became infatuated with its potential to disrupt the traditional automakers. Tesla shares are up nearly 600% for the year, and a number of up-and-comers have shown strong performances and even greater promises.
Although this performance might not be sustainable over the long-run, the potential of electrification is real. Traditional automakers such as the German giant Volkswagen A G (OTC: VWAGY) know it and are investing heavily to catch the electric wave. But despite such ‘safe-bets', there are also many other up-and-comers such as Li Auto Inc. (NASDAQ: LI), NIO Inc (NYSE: NIO), and Xpeng Inc (NYSE: XPEV) who show great potential.
The SUV Specialist
Li Auto went public only in late July, but the shares of the Chinese maker of electric SUVs are up 142% in just four months since then. Its market cap at $34 billion is in line with that of Ford Motor Company (NYSE: F) despite having one-tenth of the revenue.
Li might be selling only one vehicle at the moment, family-sized SUV named the Li One, but it has four additional SUVs planned. More importantly, the Li One also comes with an onboard gasoline generator that supplements the battery and acts as a range extender, removing the range anxiety for its customers as the charging infrastructure is yet to catch up. Li Auto expects to sell about 30,000 vehicles this year, but Goldman Sachs Group Inc (NYSE: GS) analyst Fei Fang finds Li has what it takes to manufacture up to about 500,000 annually by 2025 and without much-added construction cost.
But even if there could be some near-term turbulence, Li has positioned itself well in an attractive niche in the Chinese market with a product that is selling well.
A Well-Positioned Chinese EV Maker
China is the world's largest new-vehicle market with the government pushing the adoption of electric vehicles. According to Bank of America Corp (NYSE: BAC), NIO and Tesla together have about 90% of the market for premium electric vehicles in China. Nio is the homegrown favorite and that counts for something. Moreover, after a near-bankruptcy experience early in 2020, it's now the cash and resources to increase production. It's a safe bet to expect that big sales growth is coming given its production plan.
Next-Generation Autonomous EVs
From barely $1 million in sales in 2018, XPeng has booked more than half a billion dollars in sales over the last 12 months. By 2022, data from S&P Global Market Intelligence reports that analysts project XPeng will tip the scales at a mind-boggling $4.1 billion. If this ends up being the case, it means XPeng will go from $1 million to more than $4 billion in sales in less than four years.
Last week, it unveiled a "next-generation autonomous driving architecture" with which its EVs will become increasingly autonomous. This self-driving feature will be accomplished through cameras, radar, ultrasonic sensors, and lidar. Lidar is a laser for imaging, detection, and ranging. According to its press release will be the first car company in the world to incorporate lidar into a production-ready car, beginning with vehicles in its 2021 lineup.
Such ground-breaking technological leadership should help XPeng secure a strong position in the Chinese automotive market, where EV sales are expected to grow 43% annually over the next five years.
Volkswagen's New EV
The German giant aims to produce 1.5 million electric cars by 2025. In November, it increased its planned investment in electrification to $86 billion over the next half of a decade. The carmaker increased the proportion of hybrid and electric vehicles in its European car sales from a previous target of 40% to 60% by 2030.
To boost its sales in the EV era, Volkswagen is bringing forward the development of a small electric car for the mass market in anticipation of tougher EU climate regulations, according to plans seen by Reuters. A "Small BEV (Battery Electric Vehicle)" will be available in the range between $24,000 and $30,000. This would make it cheaper than Volkswagen's ID.3 electric car that was launched for sale in September. Besides revealing it will be around the size of a Polo, no information was provided regarding its look, launch date or the place where it will be built.
With Great Risk Comes Great Reward
There's a lot of risk involved in EV stocks, but also a lot of potential as a whole new era is ahead. The above four companies are well-positioned to benefit from this super trend.
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