Tesla Inc Is King of Electric Vehicles, But Keep an Eye on These Other Two Plays

Top Stocks in Electric Vehicle Space


Recently, I wrote about the global electric vehicle (EV) market and mentioned that China is currently the biggest national EV market by a landslide.

But an ambitious plan by Joe Biden’s administration to increase the use of electric vehicles in the U.S. over the next decade could narrow the gap. Albeit, that plan will take a lot of work and incentives to make it happen.

While the major automakers have been rapidly shifting toward EVs, the key for the U.S. will be the availability of tax credits and rebates to convince consumers to buy electric cars and trucks.

For instance, as part of Biden’s $1.7-trillion infrastructure plan, there’s $100.0 billion allocated to the electric vehicle industry. This would be a game changer for electric cars and trucks in the country, but the Senate Republicans countered the Biden plan with their own infrastructure plan that’s below $1.0 trillion.

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The interesting thing is that the portion of the Republican plan allocated to EVs is a mere $4.0 billion, versus the $100.0 billion proposed by Biden. Who knows where the final number will end up, but it will likely be far less than Biden’s initial proposal. If that’s the case, it will be a hurdle for electric vehicle adoption.

Tesla Dominates EV Sector

The electric vehicle business is broad and comprises many industries. The technology behind electric cars and trucks is the most important factor, specifically the effectiveness of the special batteries to generate power and offer long ranges.

The biggest producers of EVs are major automakers such as General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), Volkswagen AG (FRA:VOW, OTCMKTS:VWAGY, OTCMKTS:VWAPY), and Warren Buffett-backed BYD Company (OTCMKTS:BYDDY). These companies have committed billions of dollars to producing electric vehicles. Their stocks are all high-prospects long-term plays, not pure plays.

There are currently three major pure-play companies in the EV sector. The key market is China at this time, where two of the companies are based.

Tesla Inc (NASDAQ:TSLA) is by far the most globally significant electric vehicle company. It’s the only global pure-play company in the industry, dominating the EV space in the U.S., Europe, and China, where it has roughly a third of the share of the electric vehicle market.

But trading at 17 times its consensus 2022 revenue estimate, Tesla Inc isn’t cheap. That’s because, for now, Tesla is the top dog in the EV sector.

Chart courtesy of StockCharts.com

NIO Inc and XPeng Inc

The other two pure-play electric vehicle companies are the China-based NIO Inc (NYSE:NIO) and XPeng Inc (NYSE:XPEV).

NIO and XPeng, with market caps of $64.0 billion and $26.0 billion, respectively, are much smaller than Tesla, with a market cap of $606.0 billion.

Chart courtesy of StockCharts.com

NIO Inc and XPeng Inc currently generate the majority of electric vehicle sales in China, but they both have plans to expand in Europe and reduce their dependence on the ultra-competitive Chinese market. XPeng has a tiny presence in Norway and NIO is planning to move into Europe in the fall.

Chart courtesy of StockCharts.com

Analyst Take

NIO Inc and XPeng Inc trade at slightly better valuations based on forward 2022 revenue estimates of 7.3 times and 5.9 times, respectively, compared to 9.2 times for Tesla Inc.

The Chinese electric vehicle market is huge, and all three companies will likely have a strong presence in the country.

The higher valuation for Tesla is deserving at this time, but if NIO and XPeng can accelerate their financial growth and narrow their gap with Tesla in China, NIO stock and XPeng stock would be compelling.