Top 2 stocks of electric cars for long-distance purchase |  Motley asshole

Top 2 stocks of electric cars for long-distance purchase | Motley asshole

It’s always smart to build diversification into a long-term portfolio. Markets and sectors go in and out of their favour, and it pays to have some of your investments work at all times. This is even more important when building a portfolio within a specific sector.

Many see electric vehicles as the future of transportation, and it makes sense that they will have a role in that as the sector thrives. This, of course, is what drove these stocks to unsustainable valuations in the excitement that potential earnings have brought. Stock prices are now significantly off their previous highs, providing a better opportunity to begin building a diversified mix of electric vehicle holdings. Here are two that could be a good place to start.

Image source: Tesla.

Tesla: Evaluation Discussion

Tesla (TSLA -6.42%) It is the undisputed leader and leader of the entire sector. But it took years for the company to mature. The stock went up before the company was executed, however, and it prevented a lot of people from owning it from a valuation perspective.

There was always a chance of failure, and even CEO Elon Musk said his company was within about a month of bankruptcy when it ramped up mass production of the Model 3 in 2017. But Tesla has advanced, and sales have risen over the past several years.

Bar chart showing Tesla's revenue from 2008 to 2021.

Revenue will continue to grow as production is expected to increase 50% annually for several more years.

Since the same company expects to increase production by about 50% annually for several more years, these revenues will also continue to rise. New Tesla plants in Austin, Texas and near Berlin should help the company achieve this growth rate.

If the company achieves 50% revenue growth this year, the stock will trade at recent prices at a price-to-sales ratio of less than 10. That’s not cheap, but a long-term investor doesn’t only hold it for one year. Looking further, a 50% growth rate would quickly raise this rating metric to a more reasonable level. And while the price-to-earnings (P/E) ratio is still very high based on 2021 net income of $5.5 billion, this should also decline as the business grows.

This highlights one of the main risks facing Tesla as an investment as well. Based on 2021 net earnings, Tesla’s P/E is more than 130. So the stock price is really built into some of the company’s continued growth. This is another reason investors need to frame any investment here for the long term.

Nio: Expanded

Tesla’s new plant in Europe shows that the company sees this as a target market. But its first facility outside the United States was built in Shanghai. There was a good reason for that, too. China is the world’s largest car market, and the government has been supportive of the electric car industry.

New (New -1.32%) is one of the leading and growing electric company in China. Recently the car’s delivery exceeded 200,000 and entered the European market. Nio is not yet profitable, which gives it a higher risk profile than Tesla, especially given the unique potential political risks of Chinese investments. But its well-established presence in China combined with the move to Europe gives it a foothold in what should be the largest electric vehicle market of the future.

Pie chart showing the estimated percentage of total electric vehicle sales in 2030.

Data source: International Energy Agency. Scheme by the author.

In its 2021 Global Electric Vehicle Outlook, the International Energy Agency forecast that China and Europe will remain the dominant global markets for electric vehicles in 2030, when they will account for 65% of electric vehicle sales.

Nio is expanding its product line along with its geographical spread. It recently began delivering its first sedan model. In addition to the luxury ET7, the mid-size ET5 will be launched later this year. A mass market sub-brand has been discussed by CEO Nio, and recent reports suggest the plan is getting close to reality.

While both Tesla and Nio are high-risk investments, this is part of an early investment in a rapidly growing sector. This is also why it is smart to own a more diversified mix of stocks in this sector. One can help mitigate this risk by making additional investments as companies implement growth successfully. Tesla and Nio are two stocks that are a good starting point for adding EV investments to a portfolio built over the long term.

2022-05-22 10:31:00

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