Electric Vehicles (EVs) are automobiles that are electrically powered. In this industry, the most famous EV producer is Tesla, an EV and clean energy company based in California.
According to Statista, the size of the Global Electric Vehicle Market is 725 billion USD. Of which, Tesla sales accounts for a market share of approximately 15%. This shows that as an industry, the market is far from concentrated and there are plenty of opportunities for growth for existing mobility incumbents and upcoming EV players.
In this edition of 4 Stocks This Week, we will look at some of these EV stocks that may be primed for growth that we can consider investing in (beyond Tesla) if we want exposure to this industry.
#1 NIO (NYSE: NIO)
NIO (NYSE: NIO) is a Chinese multinational automobile manufacturer headquartered in Shanghai. The company specialises in designing and developing electric vehicles. Founded in November 2014 by William Li, they are currently invested in by several companies such as Tencent, Temasek, Sequoia, Lenovo, and TPG.
NIO’s Battery-as-a-Service (BaaS) model allows customers to buy an NIO car without batteries and to subscribe to battery packs as required and on a monthly subscription model. This lowers the cost of the vehicle at the time of purchase and allows flexibility when it comes to battery degradation and resale value.
NIO has also raised its target for 2021 to have over 700 battery swap stations installed across China. This creates a functioning network across the various expressways and increases the ease of access and convenience for users.
The benefits of having BaaS are that it allows fast battery swaps, approximately 3-5 minutes for cars to receive new fully charged batteries, as compared to ~75 minutes for a full charge at a supercharger. It circumvents the problem of car owners not having regular access to their own chargers.
From decoupling (separation) of the battery from the sale of the vehicle, NIO allows customers the option to purchase cars with or without batteries. The benefit to customers is that the prices are made more competitive and affordable. Having this model allows for a monthly recurring revenue where NIO is then able to consistently generate cash flow as compared to the purchase of new batteries. Through this service, NIO can retain its consumers in its ecosystem and through every data point, they can have better prediction capabilities and analysis (such as traffic conditions) that will increase the customer’s overall user experience.
NIO’s new order reached an all-time high of 5,880 vehicles in August, which was an increase of 48.3% year-over-year. The company has also adjusted the delivery outlook to the range of 22,500 to 23,500 vehicles in the 3rd quarter of 2021, due to supply chain constraints.
Key Operating Results
|2021 Q3||2021 Q2||2021 Q1|
22,500 – 23,500
|Total Revenues||To be calculated||RMB8,448.0 million (US$1,308.4 million)||RMB7,982.3 million (US$1,218.3 million)|
If we follow Q3’s management guidance, we have the number of deliveries for Q3’21 at 22,500. Assuming Q4 to have conservative estimates of 22,500, the total vehicle deliveries will be 86,956. This is an approximate year-on-year increase of 15% compared to 2020’s deliveries of 75,641.
Q2’21’s vehicle margin was 20.3%, compared with 9.7% in Q2’20. This shows that NIO can achieve economies of scale through their production capabilities which allow for a stronger vehicle gross margin. NIO is currently making losses of RMB763.3 million (US$118.2 million) in Q2’21. This is a decrease of 34.2% compared to Q2’20. From an investor’s point of view, it is important to continue monitoring the company to ensure that losses decrease as sales increase.
#2 Xpeng (NYSE: XPEV, HKEX: 9868.HK)
XPeng (NYSE: XPEV, HKEX: 9868.HK) or Xiaopeng Motors is a Chinese smart electric vehicle manufacturer that designs, develops, manufactures, and markets Smart EVs that appeal to the large and growing base of technology-savvy middle-class consumers in China.
The company is headquartered in Guangzhou with a mission to drive Smart EV transformation with technology and data. Through its full-stack autonomous driving technology and in-car intelligent operating system, XPeng aims to optimise customers’ mobility experience. The company is also heavily involved in autonomous driving with their vehicles equipped with a combination of Lidar (light detection and ranging), radar, and cameras.
In July 2021, XPeng unveiled X2, their second flying car prototype. The X2 has begun testing flights in extreme conditions, including high altitudes above cities in China. CEO He Xiaopeng says that the company is building up an R&D team to explore robots as a transportation tool “in a low-speed and random environment” and that the company wants to “introduce a flying car that can take off or land vertically, a low to mid-altitude flying car”
In September 2021, XPeng said it has plans to release a four-legged robot pony for children, in hopes that it becomes their first smart vehicle. The smart pony “Little White Dragon” is equipped with power modules, motion control, intelligent navigation, and emotional interaction capabilities. Through building this, the vision that XPeng envisioned in the future is where its robotic products take over more housework in the future and can subsequently interact with humans at an emotional level.
More growth ahead
XPeng believes that integrating Robotics into the auto industry will help the industry adjust to changing environments where the process will take between 10 to 30 years. Based on Statista’s research for “Global size of the market for industrial robots between 2019 and 2027”, the expected market size is forecasted to surpass 100 billion US dollars. Therefore, this is another huge opportunity that could further benefit XPeng’s shareholders as they could always pivot and focus on the Robotics segment, competing with the likes of Tesla, Boston Dynamics, and Xiaomi.
XPeng had 7,214 vehicles delivered in August 2021, a 172% increase year-over-year. Financial highlights for quarterly results ended June 30th, 2021, has it reporting that deliveries of vehicles were 17.398 in Q2’21, which was a record quarterly high, and represented an increase of 439% from 3,228 in the corresponding period of 2020. They closed Q2’21 with RMB3,761.3 million (US$582.5 million) which is 562.4% higher than RMB541.1 million in Q2’20. The numbers prove that there is a systemic adoption and gradual shift towards EV in China.
As of June 30, 2021, XPeng’s physical sales and service network consisted of 200 stores and 64 service centers, covering 74 cities. XPeng-branded supercharging stations expanded to 231, covering 65 cities. Therefore, from an investor’s understanding, it is important to monitor the infrastructure development of the company as this means that there is a higher take-rate and adoption of their vehicles, services, and products.
Vehicle Margin for Xpeng in Q2’21 was 11.0%, as compared to -5.6% in Q2’20. The Net Loss was RMB1,194.6 million (US$185 million).
#3 Lucid (NASDAQ: LCID)
Lucid Group (NASDAQ: LCID) is an American electric vehicle manufacturer headquartered in Newark, California, United States and founded in 2007. Lucid’s CEO, Peter Rawlinson was the former VP of Engineering at Tesla and the Chief Engineer in the design of Tesla’s Model S.
The Public Investment Fund of Saudi Arabia also invested US$1 billion into Lucid, where the bulk went towards the construction of its US$700 million manufacturing plant in Casa Grande, Arizona.
Lucid Air is the company’s first luxury sedan. The brand direction of Lucid has it being clean, modern, seamless, effortless, high-tech and future-facing There are also currently over 10,000 reservations from customers that have placed their orders.
Beyond being an EV player geared towards the luxury market, Lucid Air also promises to deliver a powerful machine where the Lucid Air Dream Edition comes equipped with 1,080 horsepower (805 kilowatts). Some statistics to look out for would be that it can reach 100 kilometres per hour in 2.5 seconds credited to its instantaneous torque. Lucid Air also claims the title of the fastest charging EV on the market when it rolls out, where the vehicle is expected to be 40% more efficient than other electric cars.
Through the combination with CCIV through the SPAC merger, Lucid can unlock more free cashflows to enhance their manufacturing capabilities. The most important of which, would have to be their investment into their Arizona facility where it will provide up to 2.7 million square feet of additional manufacturing space by increasing the capacity to up to 53,000 vehicles per year.
From an extract of July 2021’s investor presentation:
At the current juncture, Lucid is still a pre-revenue company, and as potential investors, we can only consider their future projections to ensure that there can achieve these sales volume numbers, or at least come close to it.
Lucid’s official statements also mentioned that North American Lucid Air deliveries are expected in 2H2021, and that EMEA and China deliveries are expected to begin in 2022 and 2023. These are key milestones to watch out for, as we continue to further monitor the company’s progress.
#4 Volkswagen (ETR: VOW3)
Volkswagen Group (ETR: VOW3) is a German multinational automotive manufacturing corporation headquartered in Wolfsburg, Germany. Under the group, there are various brands such as Audi, Bentley, Bugatti, Lamborghini, Porsche, Skoda and Volkswagen.
In 2020, Volkswagen raised its planned investment in digital and electric vehicle technologies to 73 billion Euros (US$86 billion) as it seeks to hold onto its position as the world’s largest carmaker in a green era. The company also says that battery EVs will be up to 70% of its sales in Europe and more than 50% in US and China by the year 2030. Under the VW Group portfolio, there are 70 new electrified models in the pipeline, with several on the market such as Porsche Taycan, Audi e-Tron, and VW ID.4.
“Cracking Industry Barrier”
Volkswagen’s ID (“intelligent design, identity and visionary technologies”) series will be the first to be permanently connected to the cloud via 4G, and are being future-proofed for 5G. VW’s strategy is also unique compared to the other market players in Europe and the United States, where its strategy seeks to maintain control of its valuable battery packs. This is done through a leasing model of their all-electric ID vehicles where the residual value of the car is kept high and the lifespan of the car can also be increased for up to 8 years or more.
“Electric Super Cars”
Two of VW’s most prominent Supercar brands: “Lamborghini” and “Porsche” often famed for their thunderous combustion engines are now in the midst of having to adapt towards electrification.
Lamborghini’s CEO Stephen Winkelmann foresees investments of EUR 1.5 billion over the next 3 years where its combustion engine heavy models will gradually be transformed into more environmentally friendly plug-in hybrids. He mentioned “From 2025 on, we will reduce our emissions by a minimum of 50% over today’s level”, where this is in line with the first stage of new CO2 fleet emission targets that will take effect in Europe. Lamborghini has also announced a fully electric car in the second half of the decade, where there is a decarbonisation roadmap that is going to be effected on the respective car models as well as the manufacturer’s factory headquarters located in Sant’Agata Bolognese.
Porsche’s fully electric Taycan has been on the road since 2019. It has been a proven success for the brand where more than 20,000 were sold globally in 2020. 17% of Porsche’s vehicles sales sold globally in 2020 were electrified, and they expect electric car sales to grow to at least 80% of its overall vehicle fleet sold globally to be partially or fully electric by 2030.
The remaining 20% that would not be electrified would be the iconic 911 and other existing gasoline-powered cars. The solution that Porsche came up with is an investment of US$24 million in synthetic fuels or “e-fuels”, which have the functions of gasoline but are carbon neutral and will allow for a more environmentally friendly way to drive.
In the first half of 2021, Group’s sales figures were positive in response to its e-mobility campaign. There were 170,939 fully electric vehicles that were delivered to customers worldwide. This was 106,477 more units than in the same period of the previous year, representing a 265% increase. Based on Morningstar’s Financial numbers for Volkswagen, the group currently has Euro 222.88 billion in total sales revenue (TTM), with a Net Margin % of 6.88%. As Volkswagen has always been an incumbent automobile manufacturer, potential investors would have to pay more attention to several key ratios such as the Gross Margin, and the Return on Invested Capital, Capital Expenditure Investments. This is such that we can pinpoint these as successful markers for the successful electrification of the group, where in the long run, they are able to make oversized profits from this transition.
The 2020s: Pivotal Years for Electrification
The electric car sector is slated to benefit under the Biden administration where the infrastructure and jobs plan is valued at US$2 trillion, with US$174 billion being allocated to EVs. This comes in various forms such as rebates for EV purchases, and for the build-up of EV charging infrastructure and stations.
In countries such as Singapore, there have also been movements by the government to phase out Internal Combustion Engine (ICE) vehicles and to have all vehicles on cleaner energy by 2040
It’s also aligned with the European Union’s stringent emissions targets that will force it to boost the proportion of hybrid and electric vehicles in its European car sales to 60% by 2030, from a previous target of 40%.
The various automobile players are also aware that there will be stringent measures as the world moves towards a more carbon-neutral environment and most have already started making strategic adjustments to their business model. From an overall market size, the transition from Internal Combustion Engine to EV will only accelerate the growth and investment opportunities. Therefore, for investors, the best way would be to understand the incoming shift and to always position their investment thesis and strategies such that when change occurs, they are always on the right side of these changes.
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4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.