The transition toward electric vehicles has begun rapidly, and several investors have a positive outlook for EV stocks. While countries across the globe are rapidly working on incentives to increase EV adoption and achieve their target of zero carbon emission, in reality, a very small percentage of EVs are on the road. It might take longer than expected for EVs to become mainstream. But the industry is moving at a steady pace, and it has the potential to become one of the biggest contributors to the economy.

While several EV makers are trying to make their mark, not all of them will be able to achieve success. Macroeconomic challenges, the Federal Reserve’s policies, consumer spending, and cash flow are just some concerns that all companies face. But beneath them, a few stalwarts have already made their mark in the industry. With that in mind, let’s take a look at three EV stocks to buy and two EV stocks to avoid.

EV stocks to buy: Li Auto (LI)

A top EV stock right now, Li Auto (NASDAQ:LI) has shown resilience amidst market turmoil and supply chain issues. This EV maker is reporting strong delivery numbers and is on track to achieve the third-quarter delivery projections. It is performing better than many other Chinese EV makers today and could be soaring to new highs in the coming months. LI stock is trading at $39 today and is up 87% year to date.

It has successfully managed to deliver 69,048 cars in July and August, which means it only needs to deliver 30,952 cars to hit the lower end of the delivery projection for the quarter. It also shows that the company is in line with the revenue projections and will report impressive numbers for another consecutive quarter. In the second quarter, the company reported a free cash flow of $1.33 billion and a revenue of $3.86 billion, over a 200% rise.

It has cars that meet the changing demand of consumers, and the L7 SUV is one of its top players, which is high in demand right now. Li Auto plans to triple the lineup by 2025 and is working towards it. As long as the cars are in demand and consumers are satisfied, Li Auto will not have any trouble generating revenue. It is one of the top EV stocks to own today.

Nio (NIO)

Nio (NYSE:NIO) hasn’t had a good year so far, but it is standing strong and ready to take big strides in the industry. The company is ready to expand production and increase sales through its double-shift production plan. Its delivery numbers are improving, and it is on the path to reporting higher deliveries in the final quarter of 2023.

The company delivered 19,329 vehicles in August. Besides being a strong EV player and catering to a niche customer base in the industry, Nio also benefits from its Battery as a Service (BaaS), which is a revenue-generating segment for the company.

Nio recently launched a phone that allows users to connect between the vehicle and the device. The Android-based phone will be available for $890, and Nio expects half of its users to buy it. There will be another version of the phone soon. It has several features, including one allowing you to instruct the car to park itself. NIO stock looks highly overlooked to me and is worth buying.

BYD Co. (BYDDF)

BYD Co. (OTCMKTS:BYDDF) is a leader in the industry and the biggest competitor to Tesla (NASDAQ:TSLA). It is also the second-largest battery manufacturer globally, proving its worth with impressive delivery numbers. It recently produced the five millionth NEV, which makes it the first EV maker to achieve this feat. BYD Co. impresses the market with each delivery number and financials.

It is expanding worldwide and has a new factory in Thailand coming up, which will begin production in 2024. The company has launched its cars in Japan, France and Australia. It shows that BYD is no longer limited to China and is ready to meet the rising global EV demand.

It saw a whopping 204% rise in profits and achieved a 73% year-over-year increase in sales in H1. Investing in BYDDF stock will give you an edge in the market since it is already a leader and is making strong strides to expand its market share. Trading at $31 today, the stock has the potential to double your money. Several analysts, including Goldman Sachs and Bernstein, have a Buy rating for the stock.

EV Stocks to Avoid: Lucid (LCID)

Amidst the rising competition, not all EV companies will be able to make it to the end. Lucid Group (NASDAQ:LCID) is one such company. It aims to sell a luxury electric SUV, which is set to launch next year, but it is already going through a lot of trouble. The company saw a wide loss of $764 million, which disappointed investors who are now concerned about the financial future of the automaker.

It also delivered just 1,404 vehicles in the recent quarter, which shows that it might not have the potential to increase production or meet the delivery expectations. There are also concerns about consumer interest in the car. If consumers wait too long for a car, they might choose another option. Domestic challenges and disappointing financials make Lucid a highly risky investment.

LCID stock is trading at $5, down 37% in the past six months. I believe this isn’t the bottom yet, and the stock could fall further down. It is one of the EV stocks to sell and trim your losses.

Fisker (FSR)

I always thought Fisker (NYSE:FSR) was overvalued, and I still think so. The company struggled to start production, and it is still aiming to ramp up production in the next quarter. However, I think the company is just taking time and overpromising. Until it delivers, it might not be worth buying the stock. Earlier, Fisker had projected a production of 36,000 for the year and revised it to 20,000, which is significantly low.

It recently launched the new vehicle models in Munich, and they are expected to be a part of the lineup by the end of 2026. It also announced plans to enhance the deliveries of its luxury electric SUV, but we will only believe it when we see it. Fisker wants to produce 300 vehicles a day in the fourth quarter, up from 180 vehicles a day.

There are macroeconomic concerns, changing consumer preferences, and a big question about vehicle adoption, which add uncertainty to the stock. FSR stock hasn’t been able to hit $10 in the past year and is trading at $5 today. Avoid this stock at all costs.

On the date of publication, Vandita Jadeja 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.