Green energy stocks are in favor, as investors increasingly gravitate toward them due to the huge potential and a favorable geopolitical environment. Against this backdrop, Morgan Stanley initiated a coverage of a few electric vehicle and battery stocks.
The Analyst: Adam Jonas initiated coverage of Quantumscape Corp (NYSE: QS) with an Overweight rating and $70 price target.
The analyst initiated coverage of Fisker Inc (NYSE: FSR) with an Overweight rating and $27 price target.
Lordstown Motors Corp (NASDAQ: RIDE) shares were initiated with an Underweight rating and $18 price target.
Jonas initiated coverage of Romeo Power Inc (NYSE: RMO) shares with an Underweight rating and $12 price target.
The Thesis: QuantumScape and Fisker offer the most compelling strategies and positive risk-reward, while Lordstown and Romeo, though holding interesting commercial potential, have less attractive growth rates and risk-reward, Jonas said in a note.
QuantumScape Very Well Positioned to Serve Domestic EV Players: QuantumScape has been developing game-changing solid state cell technology over the last decade and has achieved promising results with its patented ceramic separator, which enables higher energy density, lower cost, improved safety and faster charging, Jonas said.
Volkswagen A G Unsponsored Represent 1 10th Sh ADR (OTC: VWAGY), a 20% shareholder in QuantumScape, is co-funding the ramp and demand for its first 20 GWh, the analyst said.
The company is well-positioned to serve the U.S.-based EV players, including Ford Motor Company (NYSE: F) and Apple Inc (NASDAQ: AAPL), as the automakers look to secure a domestic supply of advanced solid state technology, he said.
If solid state batteries open up all-new total addressable markets such as electric aviation and urban air mobility, the company has the scope to become one of the largest in Morgan Stanley's coverage universe, Jonas said.
Why Fisker Stands Out In Crowded Startup Field: Fisker is a play on an all-new, asset-light, design-centered EV business model that improves time to market and break-even points, Jonas said.
"In a very crowded EV startup field, we think FSR stands out as one of the more de-risked and strategically underpinned business models," the analyst said.
Morgan Stanley said investors underestimate that the company's path to commercialization is significantly aided by Magna International Inc. (NYSE: MGA), which has a mastery of bringing high quality vehicles to market on time with good economics, he said.
"FSR is our EV 'sleeper pick.'"
Why Lordstown Faces Competitive, Tech Risks: Lordstown has entered a fast-growing TAM, with potentially underappreciated competitive and technology risk, Jonas said.
Despite enjoying the benefits from a nearly free plant and a highly experienced management team, the company faces a flood of new competition in electric pickup trucks from startups and legacy OEMs with far greater scale and distribution advantages, the analyst said.
The company's radical new hubmotor technology, he said, poses elevated execution risk, as it has never been commercialized at scale in the light vehicle market.
Why Morgan Stanley Is Bearish On Romeo Power: Romeo, which provides battery pack technology for commercial fleets, faces competition from OEM in-sourcing, Jonas said.
The company's value proposition could be appealing to small-scale OEMs, the analyst said.
"The company sits in the middle/downstream part of the value chain of batteries and does not appear to be involved in vehicle design or cell technology."
The stock performance will boil down to how quickly the company can convert orders to production, scale manufacturing and maintain margins, according to Morgan Stanley.
The Price Action: At last check:
Quantumscape shares were rising 18.52% to $53.30.
Fisker was jumping 22.22% to $18.87.
Lordstown shares were slipping 13.76% to $26.52.
Romeo Power shares were moving down 6.15% to $16.62.
Photo courtesy of Fisker.
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