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The rise in the shares of electric automaker Tesla (TSLA) have been one of the most spectacular success stories of all time. From a (split adjusted) IPO price of just $4/share in 2010, Tesla has rallied 21,000%, making the company the 4th largest in the US – and making CEO Elon Musk the wealthiest person on the planet.
Musk and Amazon (AMZN) CEO Jeff Bezos have been trading the top spot back and forth lately based on the daily value of the respective shares of their companies. They’re far and away the richest two people in the world.
Despite the incredible momentum in Tesla shares since the announcement that it would finally be included in the S&P 500 index, the company represents a conundrum for the average investor. On one hand, the way Musk and his team have executed in bringing innovative technology to the mass market is nothing short of amazing - and in many ways, the future looks just as bright.
With a big head start in the production and sale of EVs around the globe as well as new battery and home energy solutions, many believe that Tesla can continue to grow indefinitely. The possibility of selling high-margin
On the other hand, by almost any measure, Tesla is very expensive. It has a $784B market capitalization, an $825 share price and a 12-month forward P/E Ratio of 230X. Even if the best-case scenarios for sales and earnings growth materialize, it will be several years before Tesla “grows into” its share price with more typical valuation metrics.
Keep in mind that some of the same concerns were expressed about Amazon’s valuation a decade earlier while that company was spending heavily on new growth initiatives at the expense of current profits, but that it eventually became one of the most profitable companies in history.
Investors who have watched from the sidelines during the Tesla rally may be wondering whether it makes sense to get on board now. The answer is that it could still work very well from here, but at these levels, there’s more risk than before if the company hits a rough patch going forward.
Here are some EV alternatives to consider: (In order of relative risk.)
This household name has been successfully selling automobiles for over 100 years, and is about to jump into the EV market in a big way.
Fords F-150 pickup trucks are the best-selling vehicle in the US year after year and that line is about to include electric variants.
The company recently broke ground on a new plant that will be dedicated to the production of all-electric F-series trucks. The potential is obvious. Selling the EV versions alongside the ICE trucks that already sell almost a million units a year could be an ingenious strategy to get a loyal consumer base to consider an EV when it comes time to replace a beloved old truck.
Ford bottomed out at $4/share during the march 2020 selling panic, but have sharply recovered and hit a new 52-week high of $10.17/share last week. Even after the recent rally, this $38B market cap company trades at a forward 12-month P/E Ratio of just 11X.
Nio Inc (NIO).
This company currently sells three mid-sized models for the Chinese market and – like Tesla – the company has designs on simultaneously creating an “ecosystem” that includes an automobile charging network as well as commercial and residential power solutions.
Often described as the “Chinese Tesla” (though the actual Tesla manufactures and sells cars in China as well), NIO shares got a major boost in 2020, gaining almost 1,400% percent from early-year lows as EV stocks got hot.
NIO has been steadily increasing production and now delivers more than 10,000 vehicles/quarter. That’s still far fewer than Tesla, but also infinitely more than the “zero” delivery figure of many new EV manufacturers. Keep in mind however that like Tesla a few years ago, Nio has not turned increasing sales into net profits yet.
Like all EV manufacturers, Nio’s success or failure to grab significant market share will probably depend on its ability to economically source battery cells. Investors should also be aware that US trade relations with China could represent wildcard risk for this company that trades in the US as an ADR.
Churchill Capital Corp IV (CCIV)
This is a “blank check” company, listed on an exchange prior to the initiation of any business operations with the expectation that it will acquire one or more private companies, allowing the target(s) of the acquisition to become public while avoiding the onerous guidelines of the IPO process.
Recently, CCIV shares nearly doubled on the rumors that its target may be the privately held Lucid Motors, which was founded by a former Tesla engineer and is currently taking deposits on a vehicle aimed to compete with Tesla’s first mass market vehicle – the Model S sedan.
Lucid aims to begin delivering vehicles later in 2021.
Buying a blank check company in the hopes that they will complete a Special Purpose Acquisition (SPAC) of a specific company is among the most speculative, long-shot bets that an investor can make, but the markets are so excited about the prospects for Lucid Motors that Churchill shares gained more than 80% after a report last week from Bloomberg that confirmed the rumors that the companies had discussed the possibility of a merger.
Keep in mind of course that if the deal fails to materialize, CCIV shares will almost certainly fall back to the $10 level that they were trading just a few weeks ago. Caveat Emptor.
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