Guide to Trading or Investing in Electric Vehicle Stocks
In recent years, Electric Vehicles (EVs) have experienced a notable surge in popularity, with numerous individuals opting to switch from conventional cars to electric alternatives.
Consequently, due to the increasing appeal of EVs, there is a growing interest among traders and investors to potentially capitalize on the success of this sector by either trading or investing in EV stocks.
This prompts questions about the nature of EVs, the strategies involved in trading them, and essential information one should be aware of regarding this sector.
The Rise of Electric Vehicles
Here’s a detailed timeline about the rise of EVs:
1830-1880: EV prototypes surfaced in Hungary, the Netherlands, and the UK. Notably, William Morrison's innovation around 1890 is often acknowledged as the inaugural practical electric vehicle.
1880-1914: After years of using horses and carts as transportation, people started using motorized vehicles. In the US, people started using steam, electric, and gasoline vehicles with EVs becoming more popular in cities because they were easy to use.
1914-1970: EVs experienced some pressures from the rise of internal combustion engine (ICE) vehicles which hindered the development of EVs. Additionally, gasoline (RB) was cheaper than electricity, and therefore, gasoline-run cars also hindered the development of EVs by the mid-1930s for about fifty years.
1970-2003: In the 1970s, driven by oil (CL) crises, a movement to reduce oil dependence emerged and automakers started re-exploring electric cars. Gasoline prices started getting more and more expensive, and in 1997, the pivotal moment unfolded with the global success of the Toyota Prius, the mass-produced hybrid vehicle (electric and gasoline). A few years later, in 2003, entrepreneurs Martin Eberhard and Marc Tarpenning formed Tesla Motors, which reshaped and revolutionized the EV industry.
2003-2020: As mentioned above, EV giant, Tesla was formed by Martin Eberhard and Marc Tarpenning who were experienced with lithium-ion battery capacity growth. Three years later, in 2006, the company revealed its plans to manufacture a luxury sports EV with a range of over 320 km on a single charge and was successful. Nonetheless, in 2010, competition started rising in the EV sphere as companies like Nissan created an all-electric zero-emission car, called the “Nissan LEAF.” This car soon became a globally best-selling all-electric car.
2021-Present Day: EV production has grown exponentially with more and more drivers shifting to electric cars.
The Future of the Automotive Industry: Market Growth & Trends
Knowing where the automotive industry may be headed in the future can be helpful in understanding how the EV sector will fare and how this might reshape the stock market.
Here are some of the main anticipated events in the automotive industry in the near future:
More EVs:
More and more automakers are shifting and are expected to continue shifting toward electric vehicle manufacturing. Volvo (VOLV-A.ST) and General Motors among other companies are expected to go fully electric, while Volkswagen, among other companies, is set to invest more than $32 billion in electrification by the end of 2023 and has ambitious plans to introduce approximately 70 models over the next decade.
Artificial Intelligence and Extended Reality:
Virtual Reality (VR), Mixed Reality (MR), and Augmented Reality (AR) among other extended reality elements are projected to become part of the automotive industry and the creation process. In addition, Artificial Intelligence (AI) is also expected to influence automotive designs and creations.
Self-Driving Cars:
The allure of self-driving cars has captivated the imagination of many for a considerable period, and what might have seemed like a myth is now a reality. Numerous vehicles are already equipped with autonomous systems capable of navigating complex scenarios. Projections indicate that by 2030, autonomous vehicles will constitute a significant portion, making up to one-tenth of the total road traffic.
Internet Access:
An increasing number of vehicles are anticipated to be Internet-connected, operating on software to enhance communication with their surroundings. Furthermore, the car design process is poised to transition entirely to the cloud in the coming years, simplifying connectivity among designers.
Nevertheless, these are merely forecasts, but it will be interesting to see if they actualize in the near future.
How to Trade or Invest in EV Stocks?
There are many ways to try to benefit from the growing EV market and its price swings. Some of the main ones include directly buying the shares of companies involved in the making of EVs such as Li Auto (LI), Xpeng (XPEV), BYD, and Tesla.
Another way to gain exposure to EV stocks without having to buy them is through trading share Contracts for Difference (CFDs). This can allow you to trade on both rising and falling stock prices, in addition to having access to leveraged trading if that suits your needs and risk appetite.
Key Players in the EV Industry
Some of the biggest names in the EV sector in 2023 include BYD, Tesla, Volkswagen, General Motors, and Stellantis.
BYD is a Chinese automotive company that was founded in 1995 and is headquartered in Shenzhen, Guangdong, China.
BYD manufactures electric vehicles designed for both personal and commercial purposes, in addition to producing monorail systems and mobile phone components.
Among its notable vehicles is the "Dynasty Series," featuring popular models such as the BYD Qin, the flagship sedan, and the BYD Han.
Tesla is no stranger to the EV industry since 2003. It's an American multinational EV and clean energy company headquartered in Austin, Texas. Among some of Tesla’s most popular EV models are the Model 3 and Model Y which was a global best-seller at some point.
Volkswagen is a German multinational automaker based in Wolfsburg, Germany, and was founded in 1937.
While Volkswagen is not necessarily known for its EVs, it is still a notable player in the EV field. It actually started developing EVs back in the 70s with the first EV vehicle it manufactured being the “Elektro Transporter,” a minivan-like vehicle.
The company's electric vehicle lineup comprises models like the ID.3 hatchback, the ID.4 crossover SUV, and the ID.7 sedan.
General Motors, an American multinational automotive manufacturer headquartered in Michigan, was founded in 1908.
Venturing into electric vehicle manufacturing since the 1990s, the company has recently declared its commitment to exclusively provide electric vehicles, aiming to cease the production of gas- and diesel-powered vehicles by 2035.
Among GM's renowned models are those produced by its subsidiaries, such as the Chevrolet Bolt.
Established in 2021 through the merger of Fiat Chrysler Automobiles and the PSA Group, Stellantis is an automotive company based in Amsterdam.
While the company is new among its peers, it revealed that by the end of the decade, it aims to achieve 100% of its sales in Europe and 50% in the US through battery electric vehicles (BEVs), with a target of 5 million annual global BEV sales by 2030.
Additionally, some of its most popular vehicles include the Fiat New 500 which at some point claimed the top spot as the best-selling EV in Italy and secured the third position among electric vehicles in the ten major European markets, and the Peugeot e-208 which became popular in France.
Besides these companies, other popular EV makers include BMW (BMW.DE), Mercedes-Benz (MBG.DE), and Hyundai.
Benefits and Risks of Investing in EV Stocks
Like everything else, investing in EVs comes with its own risks and rewards. Among some of the potential rewards of investing in EVs is the fact that they come with the potential for high returns as this area is growing exponentially. In addition, such stocks may bear importance to those interested in preserving the environment as the companies behind these shares develop products that aim to cut carbon emissions. Additionally, this sector is clearly experiencing growing consumer demand which may also add to its strength in the foreseeable future.
Conversely, while these companies are frequently associated with elevated valuations, failing to meet these expectations can result in a steep decline in stock value which can result in high losses. Moreover, as these stocks are susceptible to environmental regulations, alterations in policies may impact stock prices. Also, the increasing number of automakers embracing the electric vehicle trend introduces heightened competition, further influencing stock prices.
Therefore, traders and investors need to carefully assess these factors before determining their approach to investing in EV stocks. (Source: Investopedia)
Risks and Challenges in the EV Industry
The electric vehicle industry encounters several challenges, including the higher purchase cost attributed to the more expensive manufacturing of EVs compared to regular cars.
Additionally, despite the increasing popularity of EVs, it's essential to note that this industry remains relatively smaller than the traditional vehicle market, resulting in a scarcity of EV technicians. Furthermore, the inadequate availability of affordable charging stations poses another hurdle for EV users.
How to Evaluate Electric Vehicle Stocks
To assess EV stocks effectively, traders can focus on aspects like a company's strategic position, its mission and alignment with market trends, and its plans for EV product line expansion and battery technology investment.
Additionally, traders should look into a company’s earnings which includes debt and revenue. Traders should also examine the company’s competitors to evaluate its worth and performance.
Finally, traders may want to assess the company's technological advancements and also keep track of how regulations affect its growth.
Conclusion
To summarize, the surge in EVs has captured the attention of traders and investors and successfully navigating the EV market necessitates a comprehensive understanding of this market’s history and biggest players.
While the EV sector is reportedly poised for growth, traders and investors should consider the potential risks that could accompany this sector before delving into it.
Common FAQs About EV Stocks
What are EV stocks, and why are they gaining popularity among investors?
EV stocks are shares of companies involved in the production or development of electric vehicles. These companies are becoming more popular due to the global shift towards sustainable and clean energy solutions.
Which electric vehicle companies are publicly traded?
Some of the publicly traded EV companies are Tesla, BYD, Volkswagen, BMW, Li Auto, and Xpeng.
What factors drive the performance of EV stocks?
EV stocks can be influenced by technological advancements, and regulatory policies, among other factors.
What are the potential benefits and risks of investing in EV stocks?
Some of the potential benefits of trading or investing in EVs include the possibility of higher returns and rising consumer demand that could boost growth prospects. Conversely, while EVs are frequently associated with elevated valuations, failing to meet these expectations can result in a steep decline in stock value which can result in high losses.
How can I evaluate the financial health of an EV company before investing?
You can evaluate the health of an EV company by looking at its earnings reports, seeing how it fares in the face of regulatory changes, and looking at its competitors.
