Everyone knows by now that traditional ICE vehicles are on their way out, fast being driven into obsolescence by electric vehicles (EVs).
In fact, according to Needham cleantech analyst Vikram Bagri, EV adoption is “moving faster than expected.” Realistically, this is not much of a shock given the macroeconomic background.
“The fundamental landscape for electric vehicles is more favorable than ever with increased gas prices, government support and improved availability,” Bagri noted. “While we expect to see some near-term volatility as natural gas prices fluctuate, there is a regulatory and demand-driven path to EV adoption.”
By 2030, forecasts for US electric vehicle penetration by IEA, BCG and BNEF range between 44% and 53%. Individual OEMs expect a much faster rate of adoption with many automakers setting their sights on 100% EV sales by 2030 or 2035.
Adoption brings many opportunities for public companies operating in the space, and that translates into opportunities for investors.
Bagri and his team have assessed the prospects of several EV manufacturers and separated – in their view – the industry’s wheat from the chaff. Let’s take a closer look.
Fisker Inc. (FSR)
Elon Musk may be the world’s most famous electric vehicle entrepreneur, but Henrik Fischer is hoping to give Musk a run for his money. The Fisker co-founder (the company was founded with his wife Geeta Gupta-Fisker) and CEO has an enviable record in the industry, having designed several luxury cars such as the Aston Martin DB9, BMW Z8, Aston Martin V8 Vantage and VLF Force 1 V10 , including.
Fisker has turned its attention to EVs. The start-up was founded in 2016, and Fisker plans to take a share of the EV market by mass-producing vehicles that are built sustainably, in addition to being reliable and affordable.
The first vehicle off the production line will be the Fisker Ocean, an electric sports utility vehicle (SUV). SUVs account for about half of passenger vehicles sold in the US and EU, making the SUV market the largest segment in the passenger vehicle segment.
Official production will begin in mid-November and the car will be assembled by Magna, the 4th largest automotive supplier. Having rolled 3.7 million vehicles off its production lines, Magna’s experience will come in handy, with Needham’s Bagri noting that “this not only reduces execution risk and time to market, but also means higher margins at the beginning of the cycle”.
Competitively priced, with prices starting below $40,000, the Fisker Ocean should be followed by the PEAR, which is expected to launch in 2H24 and will be priced below $30,000.
Explaining why he sees a bright future for this industry player, Bagri said, “FSR is entering the EV market with SUVs that feature state-of-the-art technology at an affordable price, which opens up a huge opportunity for the company. In addition, FSR aims to achieve a dominant position without significant capital expenditure through manufacturing contracts with the largest and most renowned companies.”
“Furthermore,” the analyst added, “the popularity of SUVs could make our FSR estimates too conservative, as SUVs account for ~45% and >50% of total car sales in the EU and US respectively. If these ratios hold, then the ~10mm vehicles sold in the US and EU in 2030 should be EV SUVs, which would put FSR’s share at ~5% of the EV SUV market.”
Accordingly, Bagri initiated coverage of FSR with a Buy rating and a $12 price target, suggesting the stock could post 34% growth over the next year. (To follow Bagri’s history, Click here)
Overall, FSR has a Moderate Buy rating from analysts’ consensus, based on 8 reviews that break down into 5 Buys, 2 Holds and 1 Sell. The average price target stands at $13.50, suggesting shares will climb 51% higher in the one-year time frame. (See FSR Stock Prediction on TipRanks)
Rivian Automotive (RIVN)
Rivian made a big splash when it entered the mainstream markets last November. Armed with a successful IPO, backed by Amazon and Ford, the company has set the stage to be a major competitor to EV king Tesla with the promise of premium electric trucks and SUVs.
Late last year, Rivian unveiled its premium electric truck – the R1T – and later this year it should begin deliveries of the R1S, an SUV based on the same platform.
However, ramp production has been a bit of a nightmare for Rivian. The company faced a slew of production issues earlier this year, which ranged from chip shortages to Covid-related issues to reshuffled vehicle lines. These not only affected production but also adversely affected the investment climate.
The climate has improved recently, while the headwinds have also subsided. In its July second-quarter report, the electric vehicle maker showed it delivered 4,467 vehicles in the quarter, some distance above Street’s expected 3,500 deliveries. Further boosting confidence, Rivian said it was still on track to hit its production target of 25,000 for the year. As of June 2022, the company had 98,000 total net bookings in the US and Canada for the R1 line.
With Rivian’s offerings boasting the “performance of a sports car and the durability of a pickup,” Bagri believes it has what it takes to appeal to early adopters of EVs who are “looking for something unique.”
However, from a purely investment perspective, there are currently too many issues preventing the analyst from getting behind this name.
“The valuation looks complete… While RIVN is in a solid position, we believe competition will become intense, profitability is still a long way off, production challenges remain and the company will require additional capital in 2024 and beyond,” Bagri explained .
To this end, coverage of Bagri is initiated with a Hold (i.e. neutral) rating in mind and no firm price target.
While 4 other analysts join Bagri on the sidelines and 1 suggests running for the hills, 8 other reviews are positive, culminating in a moderate buy consensus. The average price target calls for gains of 22% for one year, considering that the average target is at $49.15. (See RIVN stock forecast on TipRanks)
Lucid Group (LCID)
Tesla makes another appearance now with the introduction of Lucid. Led by ex-Tesla engineer Peter Rawlinson, this EV maker is another company hoping to steal Musk and his partnership’s crown.
Lucid’s ace is its Lucid Air electric sedan, which it touts as the “world’s longest-range, fastest-charging luxury electric car.”
This is no mere exaggeration. Rawlinson led the engineering of the Model S, but has improved its performance with the Lucid Air. The Tesla Model S has a range of 375 miles to 405 miles, but the original Lucid Air Pure boasts a range of 406 miles, which climbs to an official EPA range of 520 miles with the Lucid Air Dream Edition R.
The vehicle has been widely praised, having won several awards, including MotorTrend’s 2021 Car of the Year.
So, very promising, then. However, like many others, Lucid has been hit hard by adverse macroeconomic conditions with supply chain bottlenecks and logistics issues significantly impacting production. For example, the company hoped to produce 20,000 vehicles in 2022, but then it was reduced to around 13,000, which was further reduced to 6,000-7,000.
Additionally, the Air’s level of software capabilities has been noted as falling short of the standards of other EVs. This, along with other issues, informs Bagri’s bearish view.
“We rate LCID Underperform [i.e. Sell] due to suboptimal software, possible build speed increases, and high valuation. We believe the software development and manufacturing ramp could hit more hurdles due to high-profile departures from the company. We model production in ’23-24 to be ~20% below consensus. Finally, in our coverage, LCID is the company requiring the most external capital and soon, which could create a stock flood,” the bearish wrote.
Overall, the current market view of LCID is mixed, indicating uncertainty over its prospects. The stock has a Hold analyst consensus based on 2 Buy and 1 Hold and Sell, each. However, the $21.67 price target suggests an upside potential of ~34% from the stock’s current price. (See LCID stock prediction on TipRanks)
Of the three EV names profiled in this piece, Wall Street expects the biggest gains from Fisker stock over the next year.
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Disclaimer: The views expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.