In June 2010, Tesla (NASDAQ:TSLA) had a market valuation of $2.2 billion. Currently, the electric vehicle company commands a valuation of $583 billion. Clearly, massive wealth has been created by one of the leading EV companies in the world.
Having said that, EV stocks have been depressed in the last 12 to 18 months. The reasons include macroeconomic headwinds, intense competition and slower-than-expected EV adoption. These factors have translated into some of the best EV stocks trading at undervalued levels. In my view, the pessimism is the best time to consider EV stocks for long-term growth.
This column focuses on three EV companies that are likely to navigate current challenges and emerge stronger. These EV stocks represent companies that are focused on innovation to drive growth. Once headwinds wane, these EV stocks will be back to wealth creation mode.
Let’s discuss the reasons to be bullish on these EV stories.
Tesla (TSLA)
For investors bullish on the long-term growth for the EV industry, Tesla is a must hold in the portfolio. Over the years, Tesla has proved sceptics wrong through innovation and products that capture consumer interest. I expect the EV major to remain among the top three EV players globally by the end of the decade.
It’s worth noting that Tesla has always surprised investors and competitors. As an example, the company’s “gigacasting” process has reduced production cost. Further, the company is close to “an innovation that would allow it to die cast nearly all the complex underbody of an EV in one piece.” The unboxed manufacturing process will reduce manufacturing cost significantly. This is critical at a time when intense competition has negatively impacted margins.
In terms of deliveries growth, there are two points to note. First, the launch of new models will support deliveries upside. A potential low-cost car is likely to be a game-changer considering the brand pull. Further, Tesla is yet to make inroads into some high-growth markets like Indonesia and India, among others. These markets can be significant growth drivers in the next decade.
BYD Company (BYDDF)
BYD Company (OTCMKTS:BYDDF) stock has been largely sideways in the last 12 months. Even with the recent tariff by the European Union on Chinese EVs, BYDFF stock has remained resilient. This is an indication of undervaluation. With bearish sentiments, it’s the best time to buy the stock.
It’s worth noting that in Q4 2023, BYD overtook Tesla in terms of the number of cars sold. It’s likely to be a neck-to-neck fight for the top spot in the coming years.
On the flip-side BYD reported revenue growth at a four-year low in Q1 2024. At the same time, margin compression was on the back of pricing wars. Further, as competition intensifies, investment in R&D has to be higher to maintain the competitive edge.
To boost growth, BYD has increased focus on emerging markets. The EV firm is building facilities in Thailand and Brazil. Further, expansion is in the cards in Indonesia, Hungary and Uzbekistan as well. The EV company’s car sales in India have also been gaining momentum. New markets will therefore support deliveries growth and revenue upside.
Panasonic Holdings (PCRFF)
A steady uptick in demand for EVs would also imply growth for EV battery companies. Panasonic Holdings (OTCMKTS:PCRFF) is an attractive EV battery maker to consider at undervalued levels. It’s worth noting that PCRFF stock trades at a forward P/E of 6.5 and offers a dividend yield of 2.83%. As an innovator and a leading EV battery maker, the stock is a steal at current levels.
An important point to note is that Panasonic has ambitious growth plans. At the beginning of 2024, the battery maker had a capacity of 50Gwh. The target is to quadruple capacity to 200Gwh by March 2031. This is likely to translate into sustained revenue growth coupled with EBITDA margin expansion.
On the innovation front, Panasonic is targeting the roll out the newest iteration of its EV battery cells with improved capacity as early as this year. The long-term target is to achieve a 25% increase in battery energy density from current levels. This will help in improving productivity and lowering the overall cost of an EV. With these positives, PCRFF stock is poised to deliver multibagger returns in the coming years.
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.
