Electric Vehicle Stocks Speed Along
There are few companies as divisive to investors and analysts as Tesla Inc (NASDAQ:TSLA), and even fewer executives as divisive as Elon Musk. But it’s hard to consider 2019 as anything but a win for Tesla stock.
There’s a lot of momentum building around the electric vehicle market, which means the next big initial public offering (IPO) may be an electric vehicle stock.
Right now, Tesla has control of about 80% of the battery-electric vehicle market, according to a Morgan Stanley (NYSE:MS) report.
The report went on to say, however, that this hold on the market is “unsustainable long term” and that Tesla’s “next serious competition” will come from an exciting startup that can match it in terms of resources and talent. (Source: “Tesla faces burgeoning threat in US electric-vehicle market,” Fox Business, December 25, 2019.)
“We are not bullish on Tesla longer term, especially as, over time, we believe Tesla could be perceived by the market more like a traditional [automaker],” wrote Morgan Stanley analysts in a separate note sent to clients.
“We are prepared for a potential surge in sentiment through the first half of 2020 but question the sustainability.”
That bearish outlook for Tesla is belied by TSLA stock’s performance as of late. The stock has marked a year-over-year gain of about 40%.
Chart courtesy of StockCharts.com
Much of that surge was based on two main factors: Tesla’s global expansion and its surprise profits in its most recent quarter.
Tesla is turning heads with its very impressive progress in China, where, in under a year, the company was able to have a brand-new factory up and running. (Source: “Tesla Just Delivered Its First China-Built Cars in Shanghai,” Bloomberg, December 29, 2019.)
This entrance into China has a lot of analysts and investors excited, but also quite a few who continue to doubt that Tesla stock can maintain its momentum.
Many believe that Musk will fall short of his delivery promises, something that has become a bit of a bugbear among Tesla shareholders. After all, Musk is routinely chastised as a man who overpromises and underdelivers. Time will tell if this time will be different.
The Chinese plant is set to produce more than 1,000 cars a week, and the company aims to double that rate in the coming year. (Source: Ibid.)
Demand for Tesla’s “Model 3” car that’s built in China is “very good,” and the company is confident it will sell all of the vehicles manufactured at the site, said Allan Wang, general manager of Tesla China.
“Our aim is to kill all internal-combustion engine cars.”
All this is being helped along by subsidies from the Chinese government and an exemption from the country’s 10% purchase tax. The subsidy of up to $3,600 per vehicle puts a sizable dent in the Model 3 price, currently about $50,000.
Due to China’s push for green cars, Tesla plans to open several more factories across the country in the coming years.
The company is also looking to expand in the European market, with plans to build a manufacturing plant in Germany.
Whether you are bearish or bullish on Tesla stock, the fact remains that there’s a lot of excitement brewing around the electric vehicle market.
Electric Vehicle IPO Strength
While Tesla currently leads the pack among electric vehicle stocks, there are quite a few potentially strong investment plays coming down the pipe.
So let’s look at where the real growth potential lies in the auto industry: electric vehicle IPOs.
While Tesla stock is impressive at the moment, as mentioned above, there’s a good chance that its dominance is going to be challenged in the years to come.
Not only are we seeing established automakers put more resources into electric vehicles, we’re also seeing growth in the number of startup electric vehicle makers.
I partly agree with the Morgan Stanley analysts, in that there is indeed a lot of room for an electric vehicle IPO to swoop in on Tesla’s territory.
And that brings us to one of the biggest names making waves right now: Rivian. The American automaker is looking to challenge Tesla’s dominance in the electric vehicle space, and it has some very powerful backers.
Rivian just completed its latest funding round, finishing at $1.3 billion, bringing its total haul for 2019 to $2.8 billion. (Source: Fox Business, December 25, 2019, op. cit.)
Analysts say that this cash haul by Rivian is more than the amount that Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) will be spending combined on battery-electric vehicles in 2020.
It’s also enough money to build a “Gigafactory” (Tesla’s famous manufacturing plants) in a low-cost country or to launch two or three new models of electric vehicles.
Rivian has powerful support from some of the biggest names around, with Amazon.com, Inc (NASDAQ:AMZN) CEO Jeff Bezos believing that the company could have 100,000 vehicles on the road by 2030. Amazon is one of the investors in Rivian.
So with Rivian, you have a company with money to burn and a lot of support from some of tech’s biggest names. That could be exactly what is needed to see a shift in the electric-vehicle-stock pecking order.
So Rivian is hoping to challenge Tesla when the time is right. For now, investors ought to keep a close eye on the company as it looks to establish itself in the electric vehicle sector.
The company continues to impress while it remains private, so I believe that a Rivian IPO could be a massive boon to stock portfolios.
Of course, that depends on when the company goes public. I believe the IPO would likely be successful if undertaken in the next few years.
Tesla Stock Outlook
While Tesla Inc certainly does have its detractors, it also has a rabid fan base and one of the most impressive—if at times annoying—executives in the world.
The company is doing the right thing by expanding internationally and trying to extend its reach in what is likely going to be a massive market in the coming years.
Having said that, there are a number of obstacles in the way of Tesla’s success, not the least of which is heavy competition from companies like Rivian.
But it’s worth noting that Tesla is far more than a carmaker.
The company is also in the energy game, hoping to install renewable power sources in homes around the world. It’s also linked to self-driving technology and other ventures of that ilk that could see Tesla stock boom.
TSLA stock is certainly a risky pick, but I believe it still has massive potential.
Furthermore, Tesla’s wide-ranging operations mean that it and Rivian could both succeed in the market. It’s not necessarily a zero-sum game.
A final boon for Tesla stock (and a Rivian IPO if it comes in the next few years) is the next U.S. presidential election.
President Donald Trump is not nearly as supportive of subsidies for electric vehicles as Barack Obama was when he was president.
If we get a Democratic Party president in 2021, then we can expect to see those incentives return. This, in turn, would boost Tesla car sales and the TSLA stock price. Rivian, meanwhile, would also benefit from those subsidies.
Overall, this would create even more bullishness among investors for electric vehicle stocks.
The future of electric vehicle stocks is bright. Electric vehicles are set to proliferate and dominate the car market in the coming years as governments aim to transition people from carbon-producing cars to greener vehicles.
In an emerging market, IPOs are usually the best way to see massive, quick gains. We’ve seen it time and time again in other sectors, most recently with marijuana and meat-alternatives.
Which is to say that electric vehicle IPOs could be some of the most profitable investments in the near future.