The electric vehicle (EV) market continues to suffer from an ongoing slump. Slower sales growth and price wars have impacted both large and small EV stocks with investors unsure if it is a good time to buy them. The Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV) which holds around 84 EV and autonomous vehicles stocks, has fallen more than 1% year-to-date, underscoring how many EV stocks have broadly underperformed the general market.
Despite that, now may be a good time to find EV stocks to buy that have seen their multiples fall over the past few months. Many of these companies are trading at relatively cheap valuation multiples and, despite the broader slump, are continuing to invest in capturing market share. Although a slump may blight growth in the short-term, electric vehicles are increasingly likely to be a part of the future of transportation.
Here are three EV stocks to buy in the coming bull run.
BYD (BYDDY)
BYD (OTCMKTS:BYDDY) has experience skyrocketing growth in just the past few years. From starting out as just a smartphone battery maker to being laughed at by Elon Musk, BYD has become the world’s top EV maker, trouncing its American rival Tesla (NASDAQ:TSLA) in electric vehicle sales. In Q4 2023, BYD sold 526,409 electric vehicles, while Tesla sold 484,507.
Despite an EV slowdown, BYD is still increasing its sales year-over-year. In particular, in January 2024 the company sold 205,588 electric vehicles, up 33.1% YOY, but down more than 34% monthly. Similarly, February sales declined nearly 40%, but this is at least somewhat attributable to the Lunar New Year holiday. The Chinese EV maker was not the only large electric vehicle company to report a month-over-month decline in sales growth.
To cushion the slowdown in sales, BYD and its competitors have pursued price cuts in their expensive models. For example, BYD’s Yuan Plus SUV has a price tag of 119,800 yuan, approximately $16,642, which is nearly 12% less than where it was before. This price war will likely intensify, especially as the EV slump continues. The company also remains the second largest player in the global battery market with 14.4% of market share as of January 2024, according to a recent study.
BYD is and continues to be larger than Tesla in EV sales, and the stock only trades at 17x forward earnings, which could present a great opportunity for interested investors.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) is undoubtedly one of the largest and most prominent players in the global electric vehicle market. However, as I pointed out before, the US EV manufacturer has been struggling recently.
In 2023, to mitigate the ever-prescient EV slump, Tesla pursued a largely successful price-cut strategy. The automaker began to pursue an increase quarterly deliveries while also placing pressure on gross margins. Tesla’s Q4 2023 financial figures also beat Wall Street’s estimates, but the company issued grim guidance for 2024.
Tesla’s shares have fallen more than 30% since the start of the year, which has put the stock in “buy” territory. The EV maker’s valuation multiple has also dropped significantly over the past several months, now trading around 56x forward earnings. Tesla’s stock has been well-known to strongly rebound after a sharp sell-off period. Given where the EV maker’s stock has landed these days, I’m inclined to believe its shares could significantly rebound amidst the next stock market bull run.
Li Auto (LI)
Li Auto (NASDAQ:LI) is a leading EV manufacturer from China and key competitor to Tesla in the world’s second largest economy. The company’s EV sales actually began to overshadow that of Tesla’s China business in late 2023. This EV maker particularly focuses on producing smart SUVs with extended-range technology. The company’s flagship model, the Li L7, is a five-seat premium SUV that can run on both electricity and gasoline and competes directly with Tesla’s Model Y.
Li Auto’s share price has also taken a beating in 2024. LI shares have fallen about 18% since the start of the year. However, this has not prevented Wall Street from being optimistic about Li Auto’s prospects. In mid-March, Morgan Stanley equity research analysts increased their price target for LI from $63 to $74 per share. The average price target of Li Auto represents a 75% upside from the current share price, which could be a good reason to mull buying shares now.
While vehicle deliveries have continued to stall in 2023, this is not too dissimilar to other large EV manufacturers. Of course, when interest rates start to come down later in the year, EV sales could begin to rebound, making a bet on LI shares now worth it.
On the date of publication, Tyrik Torres did not have (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.
