The electric vehicle (EV) market cooled off over the past few years as EV makers grappled with inflation, rising interest rates, and supply chain challenges. However, that sell-off has also created some compelling buying opportunities for patient investors.
I personally wouldn’t invest too much cash in these volatile stocks before the market firms up, but they might be a compelling place to park less than $1,000 for a few years. If these stocks soar, you could end up with big multibagger gains. But if they fizzle out, you can probably offset those losses with some better performing stocks.
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So if you’re willing to nibble on a few riskier EV plays with a lot of upside potential, you should check out these two Chinese EV makers -- Li Auto (LI -4.10%) and Nio (NIO -3.47%) -- as well as the solid-state battery maker QuantumScape (QS -1.92%).
Li Auto
Li Auto is a leading manufacturer of plug-in hybrid electric vehicles (PHEVs) in China. It sells several types of plug-in hybrid SUVs and the battery-powered Mega minivan. Its annual deliveries surged from just 32,624 vehicles in 2020 to 376,030 vehicles in 2023. It also turned profitable in 2023 with a stable net margin of 9.5%. In the first nine months of 2024, its deliveries grew 40% year over year to 341,812 vehicles.
Li has also been building its own network of super charging stations. At the end of the third quarter of 2024, it was operating 894 super charging stations with 4,286 charging stalls across China. It operated 479 retail stores across 145 cities.
Analysts expect Li’s revenue to rise 18% in 2024, then grow at a compound annual growth rate (CAGR) of 28% from 2024 to 2026. They expect its net income to dip 35% in 2024 as it ramps up its production of its new Mega minivan, but they also expect it to rise at a CAGR of 53% over the following two years as it scales up its business.
With an enterprise value of 75.2 billion yuan ($10.3 billion), Li trades at just 0.5 times its 2024 sales. Its valuation is being squeezed by near-term concerns about the Chinese economy, higher tariffs, and the cooling EV market, but it could bounce back quickly if those headwinds dissipate and the bulls rush back.
Nio
Nio is another major EV maker in China. It produces a wide range of sedans and SUVs, and it differentiates itself from its competitors with removable batteries which can be quickly swapped out across its own battery swapping network. Its drivers can pay for that service on a per swap basis or through monthly subscriptions.
From 2019 to 2023, Nio’s deliveries surged from 20,565 vehicles to 160,038 vehicles. In the first nine months of 2024, its deliveries grew 36% year over year to 149,281 vehicles. That rapid expansion was driven by its market share gains, robust sales of its premium ET-series sedans, and its rollout of its cheaper Onvo smart vehicles in China. It’s also been expanding across Europe, and it plans to ramp up its deliveries of its new high-end Firefly compact EV in both China and Europe this year.
Analysts expect Nio’s revenue to rise 23% in 2024. From 2024 to 2026, they expect it to continue growing at a CAGR of 33% as it narrows its net losses. With an enterprise value of 62.1 billion yuan ($8.5 billion), Nio trades at just 0.9 times its 2024 sales. Its valuations are being squeezed by many of the same headwinds as Li Auto, but its European business also faces additional pressure from rising tariffs on Chinese EVs. If it overcomes those challenges, it could command a much higher valuation.
QuantumScape
QuantumScape is a lot more speculative than Li and Nio. It’s a developer of solid-state lithium metal batteries which hasn’t commercialized any of its products yet. However, its solid-state batteries are less volatile, have better thermal resistance, and charge more quickly than traditional lithium-ion batteries.
Therefore, QuantumScape’s batteries could significantly improve the range, charging speed, and reliability of EVs. That’s why Volkswagen (VWAP.Y 0.48%) has been co-developing those batteries with the company for over a decade. The automaker also formed a new group, PowerCo, to road test QuantumScape’s batteries in 2022.
QuantumScape started to ship the first samples of its QSE-5 batteries to some of automakers in the third quarter of 2024. It will continue to ship low volume test samples of those batteries throughout 2025 as it transitions from its current Raptor separator process to its new Cobra process -- which should boost its productivity and yields.
QuantumScape has an enterprise value of $2.3 billion, which seems pretty high for a company which doesn’t generate any revenue yet. But over the next few years, it could finally start shipping its first commercial batteries and scale up its business. Once QuantumScape crosses that milestone, it could start generating massive gains.
