EV HYPE Trillion dollar tech boom fueled by electric car hype
Most investors have probably already know that electric vehicles were one of the hottest markets, if not the single hottest market in 2020. They might also already know that Tesla soared 592%, and that its Chinese counterparts NIO, Xpeng, and Li Automobile soared 1411%, 105%, and 106% respectively.
But what most people may not yet know is that there's another opportunity emerging in EV markets. Mentioned in today's commentary includes: Fisker, Electra Meccanica Vehicles Corp, Li Automotive, XPeng Motors, Tesla.
Some of the biggest opportunities in the exploding EV space aren't to be found only in stocks of EV makers, instead, they could be made in companies that are setting up the entire ecosystem that supports the entire industry.
Electric vehicles have slowly become more popular during the last decade, but so far, it's always been a bit of a chicken and the egg story. After all, who wants to buy a swanky electric vehicle if there are no charging points, no dealer network, no fleet services, and no financing options? Behind the scenes, venture capitalists, ESG investment funds, and private equity investors have kickstarted a trend to revolutionize electric transportation not for the happy few, but for the masses.
Morgan Stanley's Adam Jonas recently noted that the real money in the EV business isn't made in the production of electric cars, instead, it's all about tech, software, and services.
Commenting on Tesla's latest price explosion, Jonas notes that, "Tesla is on the verge of a profound model shift from selling cars to generating high margin, recurring software, and services revenue … To only value Tesla on car sales alone ignores the multiple businesses embedded within the company."
But Tesla isn't the only company trying to break into this huge new tech and services market, other companies such as Canadian tech unicorn Facedrive are jumping into the gap, offering smart solutions to bring electric vehicles to the masses.
Facedrive, which started out as a ride-hailing company in the booming Canadian market has recently acquired D.C. based Steer from America's energy giant Exelon, in a deal that included a $2-million strategic investment by energy giant Exelon's wholly-owned subsidiary, Exelorate Enterprises, LLC.
Steer intends to revolutionize transportation by letting people get into EVs without breaking the bank, possibly upending conventional car ownership in the process. With this strategic move, Facedrive became one of the first players in the world to offer a three-tier subscription service in which users can choose from a list of up to 17 electric and hybrid vehicles.
Signing up is easy, and upfront costs are kept low, giving new customers a chance to drive a number of different vehicles without having to commit to one car, and unlike with lease contracts or rental contracts, Steer doesn't have a mileage limit. Better yet, Steer's subscription business has already proven that it lowers the bar for new EV drivers. 70% of Steer's subscriber base are people that have never driven an EV before, and anyone who couldn't afford to ride an EV before, can now.
Next to Facedrive (FD.V; FDVRF.QX), Chinese carmaker NIO is vying for a part of the EV services market, introducing a completely new concept: Battery as a Service. With this concept, NIO is looking to gain an edge over rivals such as Tesla by lowering the upfront purchase cost of its vehicles.
With the battery-as-a-service model, customers can buy just the vehicle shell outright, while agreeing to pay rental fees for the battery. NIO's new venture handles the leasing, maintenance, charging, and upgrades of batteries for its customers, effectively taking away doubts about battery life, vehicle reliability, and resale value of the car. Customers can also opt to replace the battery with a newer, improved one in the same car shell as energy storage technology advances rapidly. NIO's BaaS concept could lower the base price of the new vehicle by more than $10,000, and could significantly expand its pool of customers in both China and abroad.
As the EV boom continues to gain traction, research shows that many car buyers remain hesitant to fork out $50,000+ on a new electric vehicle, citing doubts about battery life, limited range, and resale value of the vehicle. The few smart companies out there that could solve these issues will be the undoubted winners of the EV boom.
The giants of the industry are paving the way
Tesla is far and beyond the most popular and successful company in the EV boom. And it's easy to see why. Armed with slick cars, game-changing technology and an out of this world CEO, Tesla has a lot going for it. Tesla is now the most valuable car company on the planet. In fact, is worth almost $616 billion while the top three American automakers--GM, Ford and Chrysler--are only worth a fraction of that. Combined.
Elon Musk had his eye on prize long before the hype started building. In fact, he released the first Tesla Roadster back in 2008, making electric vehicles cool when people were shunning at first-gen electric vehicles. Since then, Tesla's stock has skyrocketed by over 14,000%. And it's not just about cars, either. Musk is looking towards a much bigger picture, building the foundation for an electrified future on all fronts.
Clearly, its efforts are paying off, as it is without-a-doubt one of the most popular stocks on Wall Street. Even better for Musk, and shareholders, Tesla was just bumped up to the S&P 500. But while Tesla's EV threat to the industry is clear, the competition is heating up in China.
XPeng Motors is a newcomer in the Chinese electric vehicle boom. Though it only recently went public in the U.S., it's taken the market by storm. Riding on the coattails of the success of Tesla and NIO, it has carved out its own demand, especially among the younger generation of traders looking for the next big company to blow. Since its NYSE debut in August, the ambitious electric vehicle company has risen by more than 107% thanks to its promising financials and growing demand for its stylish vehicles.
In addition to retail interest, Xpeng has also received a ton of interest from Big Money. Earlier this year the company raised over $500 million from the likes of Aspex, Coatue, Hillhouse Capital and Sequoia Capital China, and even more recently, secured another $400 million from heavy hitters such as Alibaba, Qatar Investment Authority and Abu Dhabi's sovereign wealth fund Mubadala. As the demand for electric vehicles continues to grow, newcomers like Xpeng provide an excellent opportunity for investors to jump on this undeniable trend even if the missed out on Tesla's meteoric rise to glory.
Li Automotive is the newest hot stock in the electric vehicle boom. It was founded in 2015 by its namesake, Chairman and CEO Li Xiang. And while it may not be a veteran in the market like Tesla or even NIO, it's quickly making waves on Wall Street.
Backed by Chinese giants Meituan and Bytedance, Li has taken a different approach to the electric vehicle market. Instead of opting for pure-electric cars, it is giving consumers a choice with its stylish crossover hybrid SUV. This popular vehicle can be powered with gasoline or electricity, taking the edge off drivers who may not have a charging station or a gas station nearby.
Though it just hit the NASDAQ in July, the company has already seen its stock price more than double. Especially in the past month during the massive EV runup that netted investors triple digit returns. It's already worth nearly $30 billion but it's just getting started. With estimates suggesting that there could be as many as 125 million electric vehicles on the road in the next ten years, and a growing call to ban gasoline powered cars, companies like Li are sure to grow exponentially.
Electra Meccanica Vehicles Corp is another electric vehicle stock that has turned heads this year. The Canadian company's single-seat electric vehicle carries a lower, and more appealing price point for consumers that do not need all the bells and whistles that come with luxury brands like Tesla.
It's also on the cusp of an emerging market. In fact, demand for single-seat electric vehicles are projected to grow significantly in the coming years, and SOLO is one of the few companies in this market, representing a great opportunity for investors looking for an easy-entry EV stock with a lot of potential upside.
Electric Meccanica isn't only interested in the niche tiny EVs, however. It's also planning to roll out an electric sports car for two, the Tofino, and another electric two-seater boasting an old-school design that will appeal to a wide range of consumers. Given that the stock is only trading at $7.40 at the moment, there is a lot of room to grow, though not without potential risks.
Compared to Tesla or NIO, Fisker is a relative newcomer to the scene, having only IPO'd in October. While it hasn't seen quite the attention other electric vehicle stocks have seen in recent weeks, it is an important company to watch. It's unique in the industry because it boasts the most sustainable vehicle on the road: It's not just electric… it's also is made with some recycled materials. That's a huge plus considering how much investors are focusing on sustainability these days.
Though Fisker has underperformed on the market compared to NIO, Tesla, Xpeng or Li, it's still trading on massive volume and in just one month, has already climbed by more than 50% since its IPO. Clearly, investors are still waiting to see how the company will hold up, especially following the Nikola disaster.
But that doesn't mean the company isn't going places. The four-year old California based EV provider is already turning heads thanks to its innovative battery tech, and it's already securing some major deals. In fact, just last month, Fisker signed a deal with Viggo, a European ride-hailing service to add hundreds of vehicles to its fleet. Fisker's efforts are paying off, as well. Since its IPO at $9 per share, Fisker has already jumped by 76%, with analysts suggesting it has plenty of room to run still.
By Tom Kool for Oilprice.com