By now, everyone knows that traditional ICE vehicles are on the way out, quickly being outmoded by electric vehicles (EVs).
In fact, according to cleantech analyst Needham Vikram Bagri, EV adoption is “advancing faster than expected.” Realistically, this isn’t much of a shock given the macro background.
“The fundamental landscape for EVs is more constructive than ever with increased gasoline prices, government support and improving availability,” noted Bagri. “While we expect to see some volatility in the short term as gas prices fluctuate, there is a regulatory path and a demand-driven path to EV adoption.”
By 2030, the IEA, BCG and BNEF estimates for US EV penetration range between 44% and 53%. Individual OEMs expect a much faster pace of adoption, with many automakers targeting their kits for 100% EV sales by 2030 or 2035.
The adoption brings many opportunities for public companies operating in the space, and that means opportunities for investors.
Bagri and his team have been evaluating the prospects of several electric car manufacturers and have separated – in their opinion – the wheat from the chaff in the industry. Let’s take a closer look.
Fisker Inc. (FSR)
Elon Musk may be the most famous EV entrepreneur in the world, but Henrik Fisker hopes to give Musk a run for his money. The Fisker co-founder (the company was created with his wife Geeta Gupta-Fisker) and CEO has an enviable reputation in the industry, having designed several luxury cars such as the Aston Martin DB9, BMW Z8, Aston Martin V8 Vantage and VLF Force 1 V10, between the other.
Fisker has turned its focus to electric cars. The startup was founded in 2016, and Fisker plans to capture a share of the EV market by mass-producing vehicles that are sustainably built in addition to being reliable and affordable.
The first vehicle to roll off the production line will be the Fisker Ocean, an electric sport utility vehicle (SUV). SUVs account for about half of all passenger vehicles sold in the US and EU, making the SUV market the largest segment in the passenger car category.
Official production will begin in mid-November and the car will be assembled by Magna, the fourth largest supplier in the automotive industry. With 3.7 million vehicles rolling off production lines, Magna’s experience will come in handy, with Needham’s Bagri noting that “not only does this reduce execution risk and time to market, it also means higher margins at the beginning of the cycle.’
Competitively priced, with prices starting under $40,000, the Fisker Ocean is set to be followed by the PEAR, which is expected to launch in 2H24 and will be priced below $30,000.
Explaining why he sees a bright future for this industry player, Bagri said, “FSR is entering the EV market with SUVs that feature state-of-the-art technology at an affordable price, which opens up a range of huge opportunities for the company. In addition, FSR aims to achieve a dominant position without significant capital expenditure through contract manufacturing agreements with the largest and most reputable companies.”
“Furthermore,” the analyst added, “the popularity of SUVs may make our FSR estimates too conservative, as SUVs account for ~45% and >50% of total car sales in the EU and US, respectively. If these ratios hold, then ~10mm of vehicles sold in the US and EU in 2030 should be EV SUVs, which would put FSR’s share at ~5% of the EV SUV market.”
Accordingly, Bagri initiated coverage on FSR with a Buy rating and a $12 price target, suggesting the stock could post a 34% upside over the next year. (To watch Bagri’s record, Press here)
Overall, FSR has a Moderate Buy rating from the analyst consensus based on 8 reviews, breaking into 5 Buys, 2 Holds and 1 Sell. The average price target is $13.50, which means the stock will rise 51% over the one-year period. (Check out the FSR stock forecast at TipRanks)
Rivian Automotive (RIVN)
Rivian made a big splash when it went public last November. Armed with a blockbuster IPO backed by Amazon and Ford, the company has become a major competitor to EV king Tesla with the promise of high-end electric trucks and SUVs.
Late last year, Rivian introduced its premium electric truck – the R1T – and later this year is due to begin deliveries of the R1S, an SUV based on the same platform.
However, ramping up production has been a bit of a nightmare for Rivian. The company faced a host of production issues earlier this year, which ranged from chip shortages to Covid-related issues to rearranging vehicle lines. Not only did they affect production, but they also hurt investor sentiment.
Sentiments have improved recently, while headwinds have also weakened. In July’s second-quarter report, the EV maker showed it delivered 4,467 vehicles in the quarter, slightly above Street’s expected 3,500 deliveries. Further boosting confidence, Rivian said it was still on track to meet its production target of 25,000 for the year. As of June 2022, the company has a total of 98,000 net reservations in the US and Canada for the R1 line.
With Rivian’s offerings boasting “the performance of a sports car and the ruggedness of a pickup truck,” Bagri believes it has what it takes to attract early EV adopters “looking for something unique.”
However, from a purely investment perspective, there are currently too many issues that prevent an analyst from fully getting behind this name.
“The valuation looks full… Although RIVN is in a solid position, we believe competition will become intense, profitability is still a long way off, production challenges remain and the company will require additional capital in 2024 and beyond,” explained Bagri .
To this end, Bagri’s coverage starts with a Hold rating (ie neutral) and no fixed price target in mind.
While 4 other analysts join Bagri on the sidelines and 1 recommends running for the mountains, 8 other reviews are positive, all concluding with a consensus rating of moderate buy. The average price target calls for one-year gains of 22%, given the average price target is $49.15. (See the RIVN stock forecast at TipRanks)
Lucid Group (LCID)
Tesla is at it again now with the introduction of Lucid. Headed by ex-Tesla engineer Peter Rawlinson, this electric car maker is another company hoping to steal the crown from Musk and co.
Lucid’s ace is its Lucid Air electric sedan, which it touts as “the longest-range, fastest-charging luxury electric car in the world.”
This is not just hyperbole. Rawlinson oversaw the engineering of the Model S, but improved its performance with Lucid Air. The Tesla Model S has a range of between 375 miles and 405 miles, but the entry-level Lucid Air Pure boasts a range of 406 miles, rising to an official EPA record range of 520 miles with the Lucid Air Dream Edition R.
The vehicle received widespread acclaim after winning several awards, including MotorTrend’s 2021 Car of the Year award.
So very promising, then. However, like many others, Lucid has been hit hard by adverse macro conditions with supply chain bottlenecks and logistics issues significantly affecting production. For example, the company had hoped to produce 20,000 vehicles in 2022, but this was then reduced to around 13,000, which was further reduced to between 6,000-7,000.
In addition, the Air’s level of software capabilities was noted as not being up to the standard of other EVs. This, along with other problems, informed Bagri about bears.
“We rate LCID as underperforming [i.e. Sell] due to sub-optimal software, potential production speed hits and premium valuation. We believe that software development and production may face more problems due to the departure of senior executives from the company. We model ’23-24 production to be ~20% below consensus. Finally, in our coverage, LCID is the company that needs the most external capital and soon, which could create a capital surplus,” Mechi wrote.
Overall, the current market perception of LCID is mixed, indicating uncertainty about the outlook. The stock has an analyst consensus of Hold based on 2 Buys and 1 Hold and Sell, each. However, the price target of $21.67 suggests an upside potential of ~34% from the stock’s current price. (See the LCID stock forecast at TipRanks)
Of the three EV names listed in this article, Wall Street expects the biggest gains from Fisker stock next year.
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.