Electrify your portfolio with these charged up EV stocks

The price and performance of battery-powered automobiles will soon match conventional vehicles as the industry shifts into high gear

Vikram Barhat 4 December, 2019 | 1:25AM

Electric vehicle charging

It’s been another strong year for the electric vehicles industry which saw multiple launches from global auto manufacturers. Two of the newest arrivals hit the market just last month when Ford Motor unveiled its all-electric crossover SUV Mustang Mach-E, mounting a challenge to Tesla which also rolled out its much-hyped electric pickup truck in a bid to expand its EV offerings and consolidate its market dominance.

With old-guard automakers joining the frenzy over battery-powered vehicles, the forecast for the global EV market has never been brighter. By 2030, battery-powered electric vehicles will account for one out of every five cars (20%) sold, says Morningstar equity analyst Seth Goldstein. Part of that growth is fuelled by the rapidly falling battery prices. In fact, both the price and performance of EVs are projected to reach parity with conventional vehicles by 2025.

Unrelenting regulatory thrust for climate change, coupled with ongoing battery innovations leading to a longer driving range, shorter recharge times and lower prices are set to turbocharge proliferation of plug-in vehicles. Investors looking to benefit from the rising tide of EVs may want to keep close tabs on the following EV players that are well-positioned to lead and benefit from the global drive for green mobility.

Nissan Motor Co Ltd ADR

 

Ticker:

NSANY

 

Current yield:

2.98%

 

Forward P/E:

18.48

 

Price:

US$12.37

 

Fair value:

US$27.50

 

Value:

55% discount

 

Moat:

None

 

Moat trend:

Negative

 

Star rating:

*****

Data as of Dec 02, 2019


Japanese automobile juggernaut Nissan (NSANY) sells 4 million vehicles. In a cross-ownership partnership, French automaker Renault owns 43.4% of Nissan, while Nissan, in turn, owns 15% of Renault. The combined Renault-Nissan Alliance sells 10 million, placing the alliance in the top three of all automakers in the world. The Alliance also has controlling interests in AvtoVAZ (Lada) in Russia and Mitsubishi Motors in Japan.

Nissan launched its first all-electric car Nissan Leaf in 2010. Earlier this year, the Leaf became the first electric car in history to surpass 400,000 sales, playing a leading role in the global switch to sustainable mobility. “The company benefits from being the prime mover in mass-market battery electric vehicles,” says a Morningstar equity report, noting the company has sold nearly 600,000 battery electric vehicles (BEVs).

Nissan has been aggressively expanding its presence in emerging markets, which are forecast by Goldman Sachs to sell 78 million cars by 2025, more than double the units sold in the industrialized world. “Emerging markets offer tremendous growth potential for automakers, with entry-level vehicle segments, constituting 25% of global auto production,” says Morningstar equity analyst Richard Hilgert, who pegs the stock’s fair value at US$27.50 per ADR.

While Nissan’s returns on invested capital are impacted by capital requirements necessary to maintain existing models while developing new technologies, the carmaker has consistently clocked returns above its cost of capital, save for 2009, says Hilgert.

Alliance partner Renault’s co-investment in all-electric vehicle manufacturing helps to reduce Nissan’s risk as a solo EV production driver, he adds.

Tesla Inc

 

Ticker:

TSLA

 

Current yield:

-

 

Forward P/E:

75.19

 

Price:

US$335.49

 

Fair value:

US$326

 

Value:

Fairly valued

 

Moat:

None

 

Moat trend:

Positive

 

Star rating

***

Data as of Dec 02, 2019


The pioneer of EVs and the current market leader, Tesla (TSLA) is the purest EV play in the market. The company delivered nearly 250,000 vehicles in 2018. It also has an energy business that sells solar panels, solar roofs and battery storage for residential and commercial properties.

“Tesla has a chance to be the dominant electric vehicle firm and is a leader in autonomous vehicle technology,” says a Morningstar equity report, but adds the company will likely not produce mass-market volume for another decade.

Pace of production and high prices remain Tesla’s biggest hurdles to mass adoption. Tesla’s success hinges on the firm’s ability to make great products at an affordable price and “whether enough consumers will make the switch from internal combustion engines and hybrid vehicles,” says Morningstar sector strategist, David Whiston, while maintaining Tesla's growth runway looks lucrative.

Apart from their high-tech appeal, two of Tesla’s best-selling vehicles recently garnered Consumer Reports’ recommendation for their improved reliability. Credit Suisse recently reported Tesla has nearly an 80% share of the U.S. market for EVs.

However, Whiston cautions, it is important to keep the hype about Tesla in perspective relative to the firm's limited production capacity. “More assembly plants must come online to achieve annual unit delivery volume in the millions, [which] will cost billions a year,” notes Whiston, who puts the stock’s fair value at US$326.

Tesla is pushing to produce at least 500,000 vehicles at its assembly plant in California. This year, Tesla also started production at its new plant in Shanghai, which is expected to lower costs and improve profit margin.

General Motors Co.

 

Ticker

GM

 

Current yield:

4.22%

 

Forward P/E:

5.56

 

Price

US$35.88

 

Fair value:

US$48

 

Value

25% discount

 

Moat

None

 

Moat Trend

Negative

 

Star rating

****

Data as of Dec 02, 2019

The largest U.S. automaker, General Motors (GM) has eight brands and operates under three segments: GM North America, GM International, and GM Financial. The company’s brands include such popular names as Chevrolet, GMC, Buick and Cadillac, as well as all-electric and hybrid cars under Chevy Bolt and Chevy Volt brands, respectively.

General Motors is pivoting towards an-electric future to create “a world with zero crashes, zero emissions and zero congestion.” The company plans to introduce electric pickups over the next two years and ramp up production over time, according to Reuters.

The Detroit-based carmaker has a multi-year restructuring plan afoot which includes cost-saving from shuttering plants and exiting unprofitable markets, which are expected to realize cost savings of around US$4 billion by the end of 2020. These steps have “drastically lowered GM North America's break-even point to U.S. industry sales of about 10 million-11 million vehicles, assuming 18%-19% share,” says a Morningstar equity report.

Having rightsized its U.S. brand portfolio, GM now makes products that consumers are willing to pay more. “GM now operates in a demand-pull model where it can produce only to meet demand,” says Whiston, noting the auto giant is structured to do no worse than break even during economic weakness.

The company has also forayed into the ride-sharing and ride-hailing market through a 9% investment in Lyft for US$500 million, acquisition of autonomous-driving startup Cruise Automation, and by launching its own car-sharing service Maven, tapping new revenue opportunities, says Whiston who recently raised the stock’s fair value from US$47 to US$48.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
General Motors Co35.31 USD0.56
Nissan Motor Co Ltd ADR36.15 ARS0.00
Tesla Inc355.06 USD1.78

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.