Price Weakness in EV Stocks Means Opportunity for Contrarian Investors

Investment Opportunities Appear as Electric Vehicle Stocks Tank

The next few years (and decades) are expected to provide strong tailwinds for companies involved in the electric vehicle (EV) industry.

One report forecasts that the global EV market could grow to a staggering $802.8 billion by 2027, compared to $162.3 billion in 2019. (Source: “Electric Vehicle Market by Type,” Allied Market Research, last accessed May 10, 2022.)

And that estimate might actually be conservative, based on industry trends. Governments around the world are pushing to grow the EV sector. They’ve been pumping tens of billions of dollars into incentives to convince people to dump their gas-powered vehicles for electric ones.

Automakers have made it clear that EV sales will become a significant, if not major, portion of their revenues in a few years.

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The aforementioned report estimates that, by 2027, the North American EV market will rise to $194.2 billion and the Asia-Pacific EV market will grow to $357.8 billion. Moreover, Europe has been pumping tons of capital into building up its EV infrastructure and has been enticing consumers to buy EVs.

The U.S. is behind China and Europe on all fronts in the EV industry. It will take time and sustained conviction to get American drivers to switch to EVs.

The key will be how fast the U.S. can build up the massive EV infrastructure required to make a seamless transition. EV drivers will need access to charging stations across the country, just like combustion-vehicle drivers currently have access to gas stations everywhere. Without this, EV drivers will be limited by distance.

EV Stocks More Attractive After Major Decline

EV stocks were sizzling in 2020 and 2021, but they’ve been on the wrong side of the trade so far in 2022. Many EV stocks are trading well below their highs. As such, I see compelling opportunities for investors to accumulate positions.

Tesla Inc (NASDAQ:TSLA), remains the market-leading EV brand in the U.S. and China. The company has also been making inroads in Europe and badly wants to dominate the EV market in India.

While Tesla Inc has a premium valuation, Tesla stock has managed to hold its value and outperform its rivals. TSLA stock is down by 17% this year, which might look bad, but it’s actually quite good compared to other EV stocks.

Chart courtesy of StockCharts.com

Also in the pure-play EV space, Rivian Automotive Inc (NASDAQ:RIVN) shares—after a staggering start on the stock market—have declined by 50% this year.

I might be wrong, but even at its current price, I wouldn’t be jumping toward Rivian stock.

Chart courtesy of StockCharts.com

Viable EV stock alternatives to Tesla include shares of legacy automakers such as Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), Stellantis NV (NYSE:STLA), and Volkswagen AG (OTCMKTS:VWAGY). These companies continue to build gasoline-powered vehicles, but they’ve been quickly expanding their EV offerings.

The issue with these legacy automakers is their recent inability to source key parts due to global supply chain woes.

Chart courtesy of StockCharts.com

For investors with a stomach for risk, there are also the major Chinese EV stocks NIO Inc (NYSE:NIO) and XPeng Inc (NYSE:XPEV).

A concern about these EV stocks, however, is that they could be delisted from the New York Stock Exchange if the companies fail to allow in-depth audit investigations.

Chart courtesy of StockCharts.com

Analyst Take

There are very few places for investors to hide in the current volatile market unless they mostly hold cash, but then inflation will erode the value of that cash.

The way I look at it is that it could be a good idea to accumulate some shares of EV companies on price weakness, understanding that the long term for EV stocks is bullish.