Reducing carbon emissions is all the vogue among the green policy wonks these days, and whether you believe in the efficacy of those policies or not, one thing is undeniable: they will have an impact on your daily life. Specifically, they will impact the cars you drive – and probably your fuel and electric bills as well.
It’s no secret that the Trump Administration has favored the oil and gas industry, and in fact, gasoline prices have declined during the past four years. The incoming Biden Administration is expected to look far more favorably on green policies, particularly the electrification of the automobile fleet. Electric vehicles have been with us for a while, and some models are achieving popularity and driver approval. The next step will be a governmental push, via policy, to make EVs cheaper to build, more affordable to buy, and more practical on the road.
In a recent report from Goldman Sachs, the investment giant foresees global sales of electric vehicles hitting 1.8 million units this year, with 8.3 million by 2025 and an impressive 34 million by 2035. The result of this will be a reduction in the conventional car/electric car ratio of 18%.
With this in mind, Goldman’s stock analysts are tapping two electric vehicle companies which are likely to succeed in the climate of the next four years – and one to watch from the sidelines. We've used the TipRanks database to get a better sense of what other Wall Street analysts think about the trio.
Li Auto (LI)
Li Auto is one of the myriad EV production companies that has cropped up in China in recent years. The Chinese domestic car market should not be overlooked – the country has a population near 1.4 billion, with some 800 million in the urban areas, and as a whole, China is rapidly growing wealthier.
Li specializes in plug-in hybrids, which combine combustion engines and an electric drive train – and are especially useful in a country with a limited EV charging network. Li first model, the Li ONE, was put on the market in November of last year, and by this past October, the company had sold over 22,000 cars. That month, the sales volume hit 3,700, making the Li ONE China’s best-selling electric vehicle model.
This company is a newcomer to the US stock markets, having held its IPO at the end of July this year. Share debuted on the market at $11.50, higher than the initial projected range. Since the IPO, shares in LI have gained 173%.
Covering Li Auto for Goldman Sachs, analyst Fei Fang writes, “We believe Li Auto is differentiating itself from the broader Chinese auto-making industry by envisioning and creating compelling EV consumer experiences – and showing a willingness to take on the risk of unconventional technologies and act innovatively… driving transformations that will lead the long-term adoption of EVs in China. We view Li ONE as the first step in a larger innovation plan that will provide significant optionality value for the share price.”
To this end, Fang rates LI a Buy along with a $60 price target. At current levels, this implies a 91% one-year upside. (To watch Fang’s track record, click here)
Looking at the consensus breakdown, Wall Street takes a bullish stance on LI. 3 Buys and 1 Hold issued over the previous three months make the stock a ‘Strong Buy.' It should also be noted that its $36.65 average price target suggests 16% upside from the current share price. (See LI stock analysis on TipRanks)
This company needs no introduction; Elon Musk, with his genius for promotion and notoriety, has seen to that over the past few years. He’s been helped along by the company’s successful efforts to address quality control and production bottlenecks, while introducing popular new models. The result: TSLA stock has skyrocketed 667% in 2020.
The huge spike in share value has accompanied record-setting profits. Tesla turned profitable in 3Q19, and has remained so despite the impact of corona. The company’s 3Q20 results were nothing short of remarkable. Revenues rose to $8.8 billion, a 39% year-over-year gain and an even bigger 46% sequential gain. EPS rose 105% year-over-year, to hit 76 cents per share. And even better for the car maker: the free cash flow is solid, at $1.4 billion for the quarter.
The third quarter results stood on a solid foundation of production and deliveries. The company reported 145,000 vehicles manufactured in the quarter, with nearly 140,000 delivered. Improvements in delivery efficiency have helped the company to cut back on its new vehicle inventory.
Goldman analyst Mark Delaney is bullish on Tesla – and on the EV sector’s future, in general. He writes, “We believe that the shift toward battery electric vehicle (EV) adoption is accelerating and will occur faster than our prior view. We believe that battery prices are falling faster than we previously expected which improves the economics of EV ownership, and there has recently been an increase in regulatory proposals from some jurisdictions to limit or ban the sale of new internal combustion engine (ICE) vehicles entirely in 10-20 years.”
Backing his bullish stance, Delaney rates TSLA a Buy. His price target, of $780, suggests an upside of 21% in the next 12 months. (To watch Delaney’s track record, click here)
However, despite the huge gains in recent months, or maybe because of that, Wall Street remains cautious of Tesla. The analyst consensus rating is a Hold, based on 25 reviews, including 10 Buys, 8 Holds, and 7 Sells. The stock’s average price target is $403.24, indicating a possible downside of 37% from current levels. (See TSLA stock analysis on TipRanks)
Last on our list is Goldman’s neutral call on Nio, another Chinese electric vehicle company. Nio has, in recent months, managed to stand out from China’s crowded domestic EV market, introducing new models and innovative ideas. The company’s current line-up includes three mid-size SUVs powered by lithium-ion batteries, and sports car, a 2-door coupe with water-cooled electric motors. The company has several models, including two sedans, a minivan, and another SUV, lined up for future release.
Among the customer-oriented ideas that Nio is working with is ‘Battery as a Service,’ or BaaS. This concept divorces the battery from the vehicle, allowing car owners to purchase a monthly subscription and ‘refuel’ their vehicle by swapping out the battery assembly.
Earnings, while still at a net loss, have been improving for the past four quarters, and Q3 revenue came in at $4.53 billion, the best in over a year. Year-to-date, NIO shares have shown tremendous growth -- the stock is up over 1000%.
Noting that Nio has strength in its leading position in the market, Goldman's Fei Fang writes of the risks: “While Nio’s brand has been impressively established, we expect competition to heat up in the coming years with large OEMs launching comparable models, such as ID4 and Model Y… If our projected battery price declines / excess capacity does not come through and the industry works with tight manufacturing capacity and hefty EV component prices, it would weigh on Nio’s margin expansion.”
Fang gives NIO shares a Neutral (i.e. Hold) rating. But the analyst might as well have said “buy” — because he thinks the stock, currently at $45.11, could zoom ahead to $57 within a year, delivering 31% profits to new investors.
Overall, Nio’s stock gets a Moderate Buy analyst consensus rating, based on 7 Buys and 4 Holds. Meanwhile, the $49.01 average price target implies nearly 9% upside. (See NIO stock analysis on TipRanks)
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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.