Electric vehicle stocks are among the most popular choices for investors who seek triple-digit returns. These fast-growing businesses provide plenty of uncertainty and volatility. However, most of this volatility and uncertainly is already baked into many EV stocks, especially newer ones.
Of course, the fact that so many EV stocks are so volatile precludes many investors from owning these names. Volatility and risk go hand-in-hand. Moreover, up-and-coming EV companies tend to bleed cash and have less-than-impressive prospects, while more established EV companies continue to service the lion’s share of the market.
All in all, it is difficult to pinpoint which EV companies will succeed and which ones will fail. We’ll use Google’s Bard to see which companies can provide triple-digit returns. In addition to using this AI technology to narrow down the list, we’ll supplement it with our own research today.
There’s no guarantee that these picks will succeed, of course. But AI has constructive arguments, and can make it much easier to understand many companies’ business models. Let’s start!
Me: Hi Bard, I am writing an article about EV stocks that can deliver triple-digit returns in 2023. Can you give me some picks?
Bard: “ChargePoint (NYSE:CHPT) is a leading provider of EV charging infrastructure. As the EV market grows, demand for charging infrastructure is expected to increase.”
ChargePoint is a stock I’ve been bullish on since April. As Bard says, the growing EV market will lead to much higher demand for charging infrastructure, and ChargePoint is well-positioned to capitalize on that demand.
Now, we’re talking about immense demand here. Less than 1% of the vehicles on the road are electric (2 million EVs); by 2025, there could be as many as 7.8 million on the road. As S&P Global states:
“To support that vehicle population, we expect there will need to be about 700,000 Level 2 and 70,000 Level 3 chargers deployed, including both public and restricted-use facilities. By 2027, we expect there will be a need for about 1.2 million Level 2 chargers and 109,000 Level 3 chargers deployed nationally. Looking further to 2030, with the assumption of 28.3 million units EVs on US roads, an estimated total of 2.13 million Level 2 and 172,000 Level 3 public chargers will be required – all in addition to the units that consumers put in their own garages.”
Indeed, there is an immense opportunity here. The consensus analyst price target for CHPT stock implies 75.2% upside potential. That’s a solid buy in my books!
Bard: “Nio (NYSE:NIO) is a Chinese EV maker that is known for its high-quality vehicles. The company has a strong brand and a loyal customer base.”
Unlike Li Auto, Nio is not a buy right now, in my opinion. The company does have impressive metrics and is sitting at an 83% discount from its peak, but sluggish sales growth and a high cash burn are unappealing. Even though Bard believes Nio produces quality vehicles and has a strong brand and a loyal customer base, that is not enough for this company to overcome its competition. The company’s Q1 deliveries were up 20.5% year-over-year to 31,000, but declined 22.5% quarter-over-quarter.
I’m also calling sales growth “sluggish” for two reasons. One, 7.7% year-over-year growth is not enough for an early-stage EV company. Two, if you count vehicle sales alone, revenue actually fell by 0.2% on a year-over-year basis. Now, revenue growth is expected to re-accelerate to 26.5% this year, 48% next year, and 31% the year after. But that’s still less than what many well-established EV companies are growing at, such as BYD Co. (OTCMKTS:BYDDF).
Sure, there is the Abu Dhabi deal stirring up excitement recently, but I wouldn’t have high hopes. The $738.5 million investment seems hefty at first, but this company burned through $700 million in the last quarter alone, posting a net margin of -35%. Moreover, the Gulf countries are not as big of a market for luxury EVs as many people think it is. Most residents in countries like the UAE, Bahrain, Qatar, and Kuwait are foreign migrants with little purchasing power, and the wealthy elites won’t pull in much volume in the long run. Thus, my personal rating here would be a “hold.”
Li Auto (LI)
Bard: “Li Auto (NASDAQ:LI) is a Chinese EV maker that is quickly gaining market share. The company’s vehicles are well-received by consumers, and it has a strong pipeline of new products.”
While I’m pessimistic about Nio, I do think Li Auto has a lot going for it. The company now has its nose above water, pumping out $135 million in Q1 profits and sales growth of 96.5%. Li is expected to end 2023 with 115% year-over-year revenue growth, reaching $14 billion in total. The next two years could see earnings per share expand more than 250%. This, combined with triple-digit revenue growth, is quite impressive!
However, the caveat here is the stock’s valuation. Frankly, I don’t see NIO stock delivering triple-digit returns this year, in any scenario. It is already trading at a forward price-earnings ratio of 53.7-times, which is quite fair. Thus, my rating here would be “hold” again.
Dipping your toes into EV charging companies instead, like ChargePoint, will give you a better bang for your buck right now.
On the date of publication, Omor Ibne Ehsan 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.