EV stocks have been some of the worst performers over the past two years. While a handful of EV companies have held their ground, the broader EV sector has sorely lagged the overall market.
Why the sluggishness? Well, high interest rates have put a chokehold on the entire EV industry. With the cost of borrowing sky-high, consumers are hesitant to finance big-ticket purchases like electric cars. This macroeconomic environment has hampered EV sales and, in turn, weighed down EV stocks.
However, I believe the tide is about to turn for electric vehicle stocks as we head into the summer. The Federal Reserve’s interest rate hiking cycle appears to be at an end. So, once rates start falling, EV sales should pick back up. Consumers will feel more emboldened to buy once the cost of financing declines. Plus, EVs still have enormous room for penetration – only 1% of vehicles on the road today are electric. Thus, the growth runway is massive for this space.
With the macro backdrop improving, now could be an ideal time to take a calculated position in quality EV stocks before they rebound. Here are three EV stocks to look into right now.
Tesla (TSLA)
As we all know, Tesla (NASDAQ:TSLA) has been one of the worst-performing electric vehicle stocks in recent months. The company’s share price has taken an absolute pummeling, down nearly 58% from its peak. In my view, Mr. Market is being overly pessimistic and has overreacted on the downside. I believe the current downturn offers a great long-term buying opportunity for this pioneering company.
High interest rates have choked demand and punished the stock. Tesla will likely remain under pressure over the next few months until the Fed eases and cuts rates. However, looking out over the next 5-10 years, I remain very bullish on Tesla’s prospects. You may point to competitors like BYD (OTCMKTS:BYDDF), but the Chinese automaker lacks Tesla’s brand power and will struggle to gain market share in America or Europe. Tesla has carved out a unique position as the only profitable, mass-market EV maker in the West.
Additionally, cash-burning startups like Rivian (NASDAQ:RIVN) and Lucid (NASDAQ:LCID) aren’t a threat to Tesla. Their negative margins mean they lose money on every vehicle sold today. Tesla is miles ahead in every metric. Brand loyalty is also rock-solid. As interest rates decline and EV demand rebounds, Tesla has an easy growth path ahead. With 99% of cars still running on gas, the company’s growth runway is tremendous. I cannot identify another company as well-positioned to capitalize on these trends as Tesla.
Li Auto (LI)
Unlike most electric vehicle stocks, Li Auto (NASDAQ:LI) has been a shining star over the past year, largely side-stepping the global industry slowdown. While rivals have seen their share prices crumble, Li Auto keeps humming along. However, the stock did recently stumble after the company cut its Q1 delivery guidance by 24%.
Even with this lower forecast, Li Auto will likely beat expectations. In February alone, the company delivered 20,251 vehicles, up 22% year-over-year. The slower pace resulted from inventory shortages during the Chinese New Year. For the full first quarter, Li Auto still projects rapid growth, relative to any other automaker.
Despite strong operational metrics, LI stock trades at just 16-times forward earnings and 1.1-times forward sales. That seems remarkably inexpensive compared to money-losing EV startups with questionable outlooks.
The company’s recent guidance cut appears to be just a temporary speed bump. With brisk demand in China, Li Auto looks poised to continue gaining market share and rewarding shareholders.
Aehr Test Systems (AEHR)
The electric vehicle slowdown has not only hit automakers, but also the companies that are suppliers to these manufacturers. Semiconductor test equipment maker Aehr Test Systems (NASDAQ:AEHR) is one such company, and has seen its stock price decimated. currently, AEHR stock is down a whopping 72% from last September’s peak. However, with the stock now looking oversold, I believe a rebound could be on the horizon.
Aehr Test Systems makes critical test and burn-in equipment used to validate silicon carbide chips for EVs and other products. As EV production ramps back up, demand for these chips should surge. Aehr is positioned to capitalize on the need for more extensive testing of silicon carbide devices before they are deployed in vehicles.
Analysts already see Aehr’s financial performance strengthening. Consensus estimates call for around 30% earnings growth in both fiscal 2024 and 2025, alongside a revenue jump from $77 million in 2024 to $104 million in 2026. Despite this rosy outlook, the stock trades at just 19-times forward earnings – a multiple that fails to reflect its long-term growth prospects.
These expectations could turn out to be muted if EV sales recover faster. As EV sales volumes improve, demand for Aehr’s chip-testing products should follow suit.
On the date of publication, Omor Ibne Ehsan 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.
