EV stocks have been stuck in the slow lane for the past two years, leaving many long-term investors frustrated. Tesla (NASDAQ:TSLA) has badly lagged the market, and is now the worst-performing of the ‘Magnificent 7’ mega-cap technology stocks. Its underperformance has been so pronounced that many suggest it should be replaced in this elite group by a company like Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B). I agree this swap makes sense based on recent returns. The truth is most EV players have sorely disappointed investors amid the recent market turmoil.
However, I believe the time is now ripe to dig deeper and identify some value opportunities to invest in for the long-haul. The main factor dragging down EV demand has been spiking interest rates and their ripple effects across lending markets. But once rates decline from their lofty levels and consumers feel more financially secure, we should see EV purchases accelerate rapidly again.
This doesn’t mean you should indiscriminately scoop up shares of money-losing EV startups that are diluting their shareholders to stay afloat. Most firms in this sector won’t survive, and now’s not the time to invest in them. However, some quality EV players with solid financials offer significant upside when the cycle comes full circle. Here are three such EV stocks to consider right now.
Li Auto (LI)
Li Auto (NASDAQ:LI) is my top pick right now in the EV sector. This China-based EV maker has clearly been the strongest performer recently in the lackluster EV space. Just last month, Li Auto disappointed investors a bit with lower-than-expected February delivery figures and cautious guidance. However, I believe this is just a small speed bump rather than a cause for long-term concern.
Li Auto remains by far the fastest-growing well-established EV maker out there. Risky cash-burning startups have been hemorrhaging money with no end in sight. Meanwhile, EV giants have badly lagged as of late. Li Auto strikes the perfect balance, providing rapidly expanding sales and earnings while maintaining a solid financial position.
Currently, LI stock trades around $28.60 at the time of writing. With strong growth still ahead, I envision 60% or greater upside over the coming months if Li Auto manages to exceed its conservative guidance.
If Li Auto can post better-than-expected figures in the next quarter or two, we should see the stock surge higher once again. For full-year 2023, revenue grew an impressive 173.5% year-over-year to reach $17.2 billion. The company is projected to deliver 57% top-line growth in 2024, with consensus estimates calling for $27 billion in sales this year. Revenue is then expected to reach $53 billion in 2028.
At current prices, you’re paying just 1-times forward sales and 15-times forward earnings. That’s dirt cheap for a high-flyer like Li Auto. Looking further out, the stock trades at only 9-times 2026 earnings per share estimates. To me, this seems like an incredible bargain for a company growing as swiftly as Li Auto. I’m bullish on riding this stock higher over the long-haul.
Aptiv (APTV)
Unlike Li Auto, Aptiv (NYSE:APTV) is not a direct EV manufacturer. However, as a leading global auto tech company, Aptiv maintains huge exposure to the EV sector. This secondary linkage to EVs explains why the stock has struggled lately alongside most other players in the space. Shares of APTV stock have plunged 58% from their 2021 peak and could continue facing pressure, as no signs of a concrete EV turnaround are emerging.
Still, I’m incredibly bullish on Aptiv over the long-term. The company’s revenue has grown at a steady 8% compounded annual growth rate (CAGR) since 2016, a pace that’s expected to continue going forward. Additionally, April’s earnings per share are projected to double from 2024 to 2028 as margins expand. Paying just 13-times forward earnings today seems like a solid bargain.
I believe Aptiv can handily surpass expectations and achieve accelerated growth as EVs become more tech-centric. The race towards fully autonomous driving provides Aptiv with a huge opportunity. Even the mighty Tesla has thus far failed to deliver full self-driving capabilities at scale. Cracking this code would be a major competitive edge for any EV maker. Aptiv’s advanced driver-assist systems and autonomous mobility solutions position the company perfectly to ride this trend.
The future looks bright for Aptiv as vehicles become more like computers on wheels. I’m bullish on building a position before the next leg up.
Tesla (TSLA)
Tesla has always been a controversial lightning rod stock for me. At different points in recent years, I’ve been both bearish and bullish on the EV pioneer. The recent overwhelming negativity towards Tesla has pushed me back into the bull camp, despite Elon Musk’s inability to keep his mouth shut.
Tesla is clearly a highly politicized company now, and I get why many ignore it. However, I see no serious competition for Tesla in the U.S. market over the next 5-10 years. The cash-burning EV startups out there face serious risk of failure after years of diluting shareholders. Most legacy automakers are still losing money on EVs and struggling to scale production. And, growing on-shoring trends will likely limit imports from overseas rivals.
Meanwhile, Tesla maintains a dominant position with its charging network and head start on EV technology. Current growth hiccups seem to be temporary, and should clear once macro conditions improve. I don’t foresee Chinese or European EV automakers making major inroads in the U.S. market anytime soon.
With interest rates poised to decline from their peaks, I expect EV sales growth to accelerate again and send TSLA stock higher inevitably.
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.