Given few facts and data, it would be appropriate to say that the growth in the electric vehicle (EV) industry is still at an early stage. Data suggests that 14% of all new cars sold in 2022 were EVs. The International Energy Agency estimates that 60% of new cars sold will be EVs by 2030, implying multi-fold growth in EV sales volume in the next seven years.
Of course, competition has intensified and positive industry tailwinds do not necessarily imply that all EV companies will flourish. From an investment perspective, there are established EV companies like Tesla (NASDAQ:TSLA) that will continue to grow. At the same time, there are up-and-coming EV stocks that are likely to create immense value.
This column focuses on three emerging EV companies that can be potential blue-chip names in the next five to ten years.
Li Auto (LI)
I believe that Li Auto (NASDAQ:LI) is one the most promising names among emerging EV companies from China. If I had to consider a five-year investment horizon, LI stock can potentially deliver 5x to 10x returns. For year-to-date, the stock has surged by 100%. Intermediate corrections would be a good opportunity to accumulate.
I like the fact that Li Auto continues to focus on China. There is ample headroom for retail expansion in China, and Li has been aggressive on that front. There are two advantages of this approach. First, the company is gaining market share as indicated by robust deliveries growth. Second, the company has been able to keep cost under check and is already delivering healthy cash flows.
Backed by healthy deliveries growth, Li Auto reported revenue growth of 229.7% for Q2 2023 on a year-on-year basis to $3.86 billion. Furthermore, its vehicle margin was healthy at 21%. Li Auto reported free cash flow of $1.33 billion.
It’s also worth noting that the company ended the quarter with a cash buffer of $10.17 billion. This provides ample financial flexibility to invest in innovation and aggressive expansion.
Polestar Automotive (PSNY)
Polestar Automotive (NASDAQ:PSNY) stock is among the up-and-coming EV stocks to buy and hold. From current levels of $3.33, multi-bagger returns are likely in the next few years. Of course, it’s a high-risk stock, but I believe that the company can create value.
For the year, Polestar expects to deliver 60,000 to 70,000 vehicles and report a gross margin of 4%. I however believe that the coming year will be game-changing in terms of deliveries growth and margin expansion.
Polestar has initiated cost cutting measures that will help in narrowing EBITDA level losses. Additionally, operating leverage will support margin improvement.
From the perspective of deliveries growth, the company has Polestar 1 and Polestar 2 that are currently commercialized. The company has guided for Polestar 4 production commencement in November. Further, Polestar 3 production will commence in Q1 2024. On the back of new models, I expect strong deliveries growth in the coming year and 2025.
It’s worth mentioning here that Polestar 4 will be the “first production car to feature Mobileye’s Chauffeur autonomous driving technology.” With focus on ensuring an innovation edge, Polestar is likely to survive in a competitive market.
Solid Power (SLDP)
I believe that Solid Power (NASDAQ:SLDP) is another up-and-coming EV stock to buy and hold. The company is in the process of commercialization of solid-state batteries. If successful, SLDP stock can skyrocket by 20x or 30x in the coming years. This risky bet is worth considering with an investment amount that I can afford to lose.
A big reason to like Solid Power is the fact that the company’s automotive partners include Ford (NYSE:F) and BMW (OTCMKTS:BMWYY). As a matter of fact, Solid Power has licensed its research and manufacturing process to BMW. This will provide scope for parallel research and development.
In terms of R&D progress, it’s worth noting that the company expects to deliver A-sample EV cells to automotive partners. Validation testing by automotive partners will be a key milestone. If positive results are achieved, SLDP stock is likely to go ballistic.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
