Electric vehicle stocks to watch 2021
Electric car stocks have been on an incredible bull run. But they still have a long way to go.
In January 2020, Tesla shares had a market value of around US$100 billion. A year later, the company’s market cap has shot up to US$830 billion, which means the electric car maker is now worth more than the world’s nine biggest automobile companies combined.
This may well sound like stock bubble territory, but Tesla’s fortunes have been mirrored in the rising values of other electric car manufacturers too – ranging from five to 20 times in the past 12 months. Most of them still produce just a fraction of Tesla’s annual output of 500,000 vehicles.
2020 has proved to be a turning point for the electric car industry, as the increasing focus on climate change, government mandates and technological advances have provided a boost to the sector.
Much of the rise of the industry during the last few years has been backed by changing government regulations, with major nations paving the way for more electric cars on the roads in a bid to curb vehicular pollution and reverse climate change.
European nations have typically led the the way, with a looming ban on sale of petrol and diesel cars due to take effect in Sweden and Denmark by 2030, the U.K. from 2035 and France & Spain from 2040. China, now the world’s biggest electric car market, says it will only allow sale of electric, fuel cell or hybrid cars by 2035. Even the U.S., under the new administration of President Joe Biden, is expected to incentivise electric cars, sharply boosting demand.
What does this mean for investors?
Estimates for the current level of vehicle electrification range between just 1% to 3%. That means the vast majority of the global passenger car fleet of 1.4 billion vehicles still runs on fossil fuels and will need to be replaced in coming decades. There is substantial opportunity for EVs to replace these remaining vehicles.
It is this growth potential that is being reflected in electric car stocks such as Tesla, or those of its China-based challengers Li Auto and Nio. While significant volatility is expected in their share prices, making it a bumpy ride for investors, long-term growth forecasts remain quite strong.
Even shares of traditional car makers such as General Motors, BMW and Toyota - which have deep car-making expertise and have been investing substantial amounts in EV technology - have benefited from the bull run.
But overvalued stocks of high profile electric car manufacturers are just one of investment options in the industry, analysts say. Investors, particularly in Australia, have plenty of opportunities up and down the supply chain for electric vehicles. For instance, resources companies focused on nickel, lithium and cobalt - widely used in battery production, can provide good exposure to the electric vehicle market.
EV-focused stocks for 2021
The electric vehicle market is projected to hit sales of US$800 billion by 2027. There are dozens of electric car manufacturers and thousands of auto ancillaries and raw materials makers that tap into their supply chain. Here is a list of some of the most talked about automakers and suppliers from the US and Australia that look set to benefit from the rise of electric vehicles.
- YTD performance (to January 25): 19.10%
- Market cap: 3383.24 billion yen
- Date founded: 1918
- Summary: The Japanese electronics company is the exclusive supplier of rechargeable batteries to Tesla. It is also investing in Tesla’s Gigafactory in Nevada to produce lithium-ion batteries.
- YTD performance (to January 25): 37.20%
- Market cap: $3.33 billion
- Date founded: 2005
- Summary: It operates the Pilgangoora Lithium-Tantalum project in Western Australia, and is setting itself to be one of the lowest cost lithium suppliers to the global electric vehicle market.
- YTD performance (to January 25): 14.0%
- Market cap: $5.01 billion
- Date founded: 1983
- Summary: Lynas is the only major proven producer of rare earths outside China. It produces cerium, widely used in automobile catalytic converters, and neodymium & praseodymium, used in battery magnets for electric vehicles.
How to buy EV stocks
To invest in the rise of electric vehicles, focus on the part of the industry you're most bullish about. It could be the high profile car makers, or it could be key mineral suppliers for batteries or it even auto parts makers supplying specialist components.
Once you've done your research and you understand the risks, you'll need to open a brokerage account. The platform you choose will depend on which market you plan to tap into. Planning on buying US stocks? You'll need to find a US broker, such as such as eToro, or an ASX broker if you're looking to buy Australian stocks.
Once you've chosen a share trading platform, you'll be able to search for the company name of your chosen EV stock or its stock code. Depending on the broker you choose, it might offer additional information about each company, including broker rating, price targets, dividend payments and debt-to-value ratio.
For more on trading shares, check out our comprehensive guide.
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