Everyone knows by now, traditional ICE vehicles are on their way out, fast driven to obsolescence by electric vehicles (EVs).
In fact, according to Needham’s clean tech analyst Vikram Bagri, EV adoption is “progressing faster than expected.” Realistically, this is not much of a shock considering the macro background.
“The fundamental landscape for EVs is more constructive than ever with elevated gas prices, government support, and improving availability,” Bagri noted. “Though we expect to see some near-term volatility as gas prices fluctuate, there is a regulatory and demand-driven path to EV adoption.”
By 2030, forecasts for EV penetration in the U.S. from IEA, BCG, and BNEF range between 44% and 53%. Individual OEMs expect a much speedier rate of adoption with many automakers setting their sets on 100% EV sales by 2030 or 2035.
Adoption brings plenty of opportunities for public companies operating in the space, and this translates to opportunities for investors.
Bagri and his team have been assessing the prospects of several EV makers and have separated – according to their view - the industry’s wheat from the chaff. Let's take a closer look.
Fisker Inc. (FSR)
Elon Musk might be the world’s most famous EV entrepreneur, but Henrik Fisker is hoping to give Musk a run for his money. The Fisker co-founder (the company was formed with wife Geeta Gupta-Fisker) and CEO has an enviable record in the industry, having designed several luxury cars such as the Aston Martin DB9, BMW Z8, Aston Martin V8 Vantage, and the VLF Force 1 V10, amongst others.
Fisker has turned his focus to EVs. The start-up was founded in 2016 and Fisker plans to take share in the EV market by mass producing vehicles which are sustainably made in addition to being reliable and affordable.
The first vehicle off the production line will be the Fisker Ocean, an electric sport utility vehicle (SUV). SUVs account for around half of the passenger vehicles sold in the US and the EU, making the SUV market the biggest segment in the passenger vehicle category.
Official production will begin in mid-November and the car will be assembled by Magna, the auto industry‘s 4th largest supplier. Having had 3.7 million vehicles roll off its production lines, Magna’s experience will come in handy, with Needham’s Bagri noting that “this not only reduces execution risk and time to market but also means higher margins early on in the cycle.”
Competitively priced, with prices starting under $40,000, the Fisker Ocean should be followed by the PEAR, which is expected to launch in 2H24 and will be at a lower $30,000 price-point.
Explaining why he sees a bright future for this industry player, Bagri said, “FSR is entering the EV market with SUVs that feature cutting edge technology at an affordable price, which opens a vast opportunity set for the company. Moreover, FSR aims to achieve a dominant position without significant capital outlays through contract manufacturing agreements with the largest & most reputed companies.”
“Furthermore,” the analyst went on to add, “the popularity of SUVs could make our estimates for FSR too conservative, as SUVs account for ~45% and >50% of total car sales in the EU and the US respectively. If these ratios are sustained, then ~10mm vehicles sold in the US and the EU in 2030 should be EV SUVs, which would put FSR's share at ~5% of the EV SUV market.”
Accordingly, Bagri initiated coverage of FSR with a Buy rating and $12 price target, suggesting the stock could see growth of 34% over the next year. (To watch Bagri’s track record, click here)
Overall, FSR has a Moderate Buy rating from the analyst consensus, based on 8 reviews breaking down to 5 Buys, 2 Holds, and 1 Sell. The average price target stands at $13.50, implying shares will climb 51% higher over the one-year timeframe. (See FSR stock forecast on TipRanks)
Rivian Automotive (RIVN)
Rivian made a big splash upon entering the public markets last November. Armed with a blockbuster IPO, backed by Amazon and Ford, the company set up stall to be a major competitor to EV king Tesla with the promise of high-end electric trucks and SUVs.
At the end of last year, Rivian unveiled its premium electric truck - the R1T - and later this year it should begin deliveries of the R1S, an SUV based on the same platform.
However, ramping production has been a bit of a nightmare for Rivian. The company faced a plethora of production issues earlier this year, which extended from chip shortages to Covid-related problems to the rearrangement of vehicle lines. These not only impacted production but also badly affected investor sentiment.
Sentiment has improved recently while the headwinds have also been abating. In July’s Q2 report, the EV maker showed it delivered 4,467 vehicles in the quarter, some distance above the Street’s 3,500 expected deliveries. Further boosting confidence, Rivian said it is still on track to come good on its 25,000-production target for the year. As of June 2022, the company had 98,000 total net reservations in the US and Canada for the R1 line.
With Rivian’s offerings boasting the “performance of a sports car and ruggedness of a pickup,” Bagri thinks it has what it takes to attract early EV adopters “looking for something unique.”
However, purely from an investing perspective, right now there are too many issues which stop the analyst from fully getting behind this name.
“Valuation appears full... While RIVN is in a solid position, we believe the competition will get intense, profitability is still far out, manufacturing challenges remain, and the company will require additional capital in 2024 and beyond,” Bagri explained.
To this end, Bagri’s coverage begins with a Hold (i.e. neutral) rating and no fixed price target in mind.
While 4 other analysts join Bagri on the sidelines and 1 recommends running for the hills, 8 other reviews are positive, all culminating in a Moderate Buy consensus rating. The average price target calls for one-year gains of 22%, considering the average target clocks in at $49.15. (See RIVN stock forecast on TipRanks)
Lucid Group (LCID)
Tesla makes another appearance now with the introduction of Lucid. Helmed by former Tesla engineer Peter Rawlinson, this EV maker is another company hoping to steal Musk and co.’s crown.
Lucid’s ace is its Lucid Air electric sedan which it touts as being the “longest range, fastest charging luxury electric car in the world.”
That’s not just hyperbole. Rawlinson led the engineering of the Model S but has improved on its performance with the Lucid Air. The Tesla Model S has a range between 375 miles to 405 miles but the entry-level Lucid Air Pure boasts 406 miles of range, which climbs to a record-breaking official EPA range of 520 miles with the Lucid Air Dream Edition R.
The vehicle has received widespread praise, having won several prizes, including MotorTrend's 2021 'Car of the Year' award.
So, highly promising, then. However, like many others, Lucid has been hit badly by the adverse macro conditions with supply chain snags and logistics issues severally impacting production. For instance, the company hoped to produce 20,000 vehicles in 2022, but that was then lowered to around 13,000, which was further reduced to between 6,000-7,000.
Furthermore, the level of the Air’s software capabilities has been noted as not being up to the standard of other EVs. This, along with other issues, informs Bagri’s bearish take.
“We rate LCID Underperform [i.e. Sell] due to suboptimal software, potential manufacturing speed bumps and premium valuation. We believe software development and manufacturing ramp could hit more snags due to high profile departures from the company. We are modeling production in '23-24 to be ~20% below consensus. Finally, in our coverage, LCID is the company that requires most outside capital and soon, which could create an equity overhang,” bearish wrote.
All in all, the market’s current view on LCID is a mixed bag, indicating uncertainty as to its prospects. The stock has a Hold analyst consensus based on 2 Buys and 1 Hold and Sell, each. However, the $21.67 price target suggests an upside potential of ~34% from the current share price. (See LCID stock forecast on TipRanks)
Of the three EV names outlined in this piece, Wall Street expects the greatest gains from Fisker stock over the next year.
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 analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.