It's tough to have a conversation about electric-vehicle (EV) stocks without mentioning Tesla. But it's important to keep in mind that there could be other EV investments that are worth a look, and there are three that I like more than Tesla at their current prices.
Don't get me wrong. I'm a big fan of Tesla and think the company has revolutionized the automotive world. When the Model S was introduced, Motor Trend named it 2013's "Car of the Year," a well-deserved title. And we undoubtedly wouldn't be on the cusp of a full-scale EV adoption boom without Tesla's contributions to the industry.
But with Tesla trading at an $840 billion valuation and 95 times forward earnings estimates, there's a lot of growth priced in, and I think there are more compelling opportunities for long-term investors. With that in mind, here are my two favorite EV stocks to buy right now, and why I'm a big fan of each.
A great automaker with a dirt cheap valuation
General Motors (GM 0.18%) is often dismissed as a "legacy" automotive stock, but I think it should be on the radar of every EV stock investor.
For one thing, the business is wildly profitable and doing quite well. It shattered analyst expectations on both the top and bottom lines in the first quarter and grew its net income by 26% year over year.
Its margins remain strong, and the company is using its cash flow to aggressively buy back stock. Over the past year alone, General Motors has reduced its outstanding share count by more than 18%.
To be fair, GM is still in the early stages of building out its EV business, but it's doing so by focusing on efficiency and profitability. The company recently reported second-quarter EV deliveries that grew 40% year over year. As it gradually rolls out electric versions of its most popular models, this figure could go through the roof.
In addition, GM has some big advantages, such as brand loyalty, a proprietary battery platform (Ultium), and relationships with corporations and the U.S. government. Despite its massively profitable business, the stock trades for just over six times trailing-12-month earnings.
Warren Buffett's favorite EV stock
BYD (BYDD.F -1.10%) (BYDDY -1.47%) is often referred to as the Tesla of China, and it's easy to see why. In one recent quarter, it actually overtook Tesla for the title of "world's largest EV maker."
Warren Buffett and his Berkshire Hathaway conglomerate are well-known for their aversion to new technologies, so you might be surprised to learn that Berkshire owns 6% of BYD. The company's late Vice Chairman Charlie Munger had extremely high praise for the company and its leadership and was the biggest reason Berkshire invested in the company. He even said, "I have never helped do anything at Berkshire that was as good as BYD and I only did it once."
BYD started its life as a battery supplier to the mobile communications industry, and Motorola was a major early customer. But it eventually pivoted to producing electric vehicles, an industry where its battery expertise gave it a big advantage. These days, BYD makes many of its other vehicle components in-house, as well, and this vertical integration gives it tremendous cost advantages over its peers.
While BYD's success is impressive with a 35% market share in China despite some tough competition, the company's best growth could still be ahead. At just 21 times earnings, it looks like an attractive value right now.
The bottom line
These are two excellent automotive stocks that are highly profitable businesses with lots of room to grow in the coming years. There's absolutely nothing wrong with investing in Tesla if you like the company and its potential, but if you're looking for some attractively valued alternatives, keep these two EV stocks in mind.