The electric vehicle (EV) industry is poised to deliver on its promises in 2021. While the industry gained momentum over the past year on regulatory tailwinds and rising climate change awareness, participating companies are now trying to justify their price gains by launching assortments of electric vehicles and ramping up sales.
The global macroeconomic recovery is increasing per capita consumer spending and also driving automotive industry growth as people who put their car purchase plans on hold over past year move to realize those plans this year. Also, rising crude oil prices and multiple tax credits are incentivizing people to switch to EVs now, ahead of the U.S. government’s plan to phase out internal combustion vehicles a decade from now.
Wall Street expects the Chinese EV market to flourish in 2021 because the country’s growth trajectory leads the world. And with China sitting on the majority of the world’s rare earth deposits that are required for EV production, in addition to being the largest market for EVs worldwide, Chinese EV stocks NIO Limited (NIO) and Li Auto Inc. (LI) should gain significantly in the coming months. Also, with deteriorating U.S. -China relations, the Chinese EV industry is currently eyeing the fastest recovering European markets to launch their products. Europe is the fastest growing market in terms of EV sales as of 2020. So, success in that market should drive Chinese EV companies to new heights this year.
Furthermore, Wall Street’s contrarian analysts are also placing their bets on tainted Nikola Corporation (NKLA). The company has been taking steps since the second half of last year to improve its image in the markets and is finally on track to become a pioneer in fuel-cell technology. NKLA plans to launch its vehicles later this year, which should help the company’s stock to significant gains.
NIO Limited (NIO)
NIO is one of the biggest electric vehicle companies in China and is widely dubbed the ‘Tesla of China’. While the company doesn’t have a strong presence in the United States, it is one of the biggest EV suppliers in the East. NIO delivered 7225 vehicles in January alone, representing a 352.1% rise year-over-year. Moreover, NIO is planning to enter the European markets in the second half of 2021, according to CEO William Li. Given the West’s ambitious plans to begin phasing out fossil fueled cars over the next couple of decades, NIO’s cost-efficient vehicles and proprietary “battery-as-a-subscription” plan could allow it to dominate the European markets soon. NIO stock has gained 1321.5% over the past year, and 107.1% over the past six months.
NIO raised $1.50 billion through senior notes offering in February, the proceeds of which should allow it to meet its general corporate expenses and improve its liquidity and balance sheet.
Its vehicle sales have increased 130% year-over-year to $946.20 million in the fourth quarter, ended December 31, 2020. Its total revenues stood at $1.12 billion, up 133.2% from the same period last year. And its gross profit of $175 million represents a substantial rise from a negative year-ago value. The company exited 2020 with a strong balance sheet, with cash holdings of $6.50 billion as of December 31.
Analysts expect NIO’s EPS to rise 52% in the current quarter, ending March 2021, 41.1% in fiscal 2021, and 83.7% next year. NIO has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $947.38 million for the first quarter represents a 383.8% improvement year-over-year. Moreover, the company’s revenue is expected to rise 107.7% in the current year, and 64.5% in 2022.
Of the 10 Wall Street analysts that rated the stock, seven rated it Buy, and three rated it Hold. Analysts expect the stock to hit $65.24 soon, indicating a potential upside of 76.5%.
Nikola Corporation (NKLA)
NKLA was one of the most controversial SPACs in 2020. However, it caused the stock to decline rapidly after hitting its all-time high of $93.99 within the first four days of its public debut. Nevertheless, the company has been hard at work improving its tainted reputation in the markets by speeding up its production process and developing new fuel-cell powered commercial projects. NKLA has gained 30.1% over the past year.
In January, NKLA secured an innovative electric rate schedule with Arizona Public Service Company. This should allow it to boost its development of hydrogen-based fueling solutions for the transportation industry through the low-cost production of hydrogen.
NKLA Tre battery electric vehicle (BEV) landed in the United States in December last year, following which its commissioning and production in its Arizona factory began. To expand its electric truck product portfolio, the company launched its North American hydrogen fuel-cell electric vehicle commercial truck program on February 23. As part of its commercialization program, NKLA also plans to develop two long range fuel-cell sleepers.
While NKLA’s financials were still in the red as of the fourth quarter, ended December 31,2020, the company is expected to launch its vehicles this year. A consensus revenue estimate of $21.50 million for fiscal 2021 represents a significant rise year-over-year. Also, NKLA’s EPS is expected to rise at a rate of 20.6% per annum over the next five years.
These developments have encouraged Wall Street to again bet on NKLA, recognizing its potential as a leader in the fuel-cell EV space. Ten analysts have issued 12-month price targets for the stock, with a high forecast of $30 and low forecast of $17. NKLA’s 12-month consensus price target of $24.50 represents a potential upside of 74.3%.
Li Auto Inc. (LI)
LI is one of the budding names in the Chinese EV space with tremendous growth potential. The company went public on July 30 last year, with an initial market valuation of $10 billion. The stock’s current market valuation stands at more than $20 billion, doubling in less than a year. LI’s follow-on ADS public offering in December 2020 and its share price gains have facilitated the rise in its market capitalization. LI has gained 43.1% since its public debut last year, and 51.7% over the past six months.
LI’s vehicles have been rated one of the safest commercial EVs in China. The company has a G safety rating (the highest) in three of four evaluation categories from the China Insurance Automotive Safety Index Management Center. LI received an M rating in the categories of crashworthiness and repair economy, which is one of the top ratings for large premium SUVs.
The company had approximately 60 retail stores across 47 cities and 125 service centers in around 90 cities in the country as of February 28. The company has delivered 2300 EVs in the past month, demonstrating a 755% improvement year-over-year. In January, LI set up a research and development center in Shanghai to develop cutting-edge EV technologies, such as high-voltage and ultra-fast charging, as well as autonomous charging and next-generation computing platforms.
The company reported record deliveries of 14464 vehicles in the fourth quarter ended December 31, 2020, representing a 67% gain versus the year-ago value. The company’s vehicle sales rose 64.6% year-over-year to $621.90 million, while its revenues increased 65.2% from the same period last year to $635.50 million. Its non-GAAP net income came in at $17.70 million, up 621.3% sequentially.
The Street expects LI’s EPS to rise 78.6% in fiscal 2021 and 483.3% next year. Also, its revenue is expected to rise 101% year-over-year to $2.91 billion in the current year and 78% from the year-ago value to $5.18 billion in fiscal 2022.
Of the seven Wall Street analysts that rated the stock, six rated it Buy and one rated it Hold. In addition, analysts expect LI to hit the median price target of $40.21 soon, representing a potential upside of 75.7%.
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NIO shares were trading at $37.63 per share on Thursday afternoon, up $0.67 (+1.81%). Year-to-date, NIO has declined -22.79%, versus a 3.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.3 Electric Vehicle Stocks Wall Street Predicts Will Rally By at Least 75% appeared first on StockNews.com