Electric cars -- often referred to as “EVs” for “electric vehicles” -- are automobiles with electricity-powered engines rather than gas-powered ones. EVs don't require fuels such as gasoline or diesel.
Electric car stocks comprise companies that primarily focus on manufacturing EVs. In addition, companies that manufacture the components used in electric cars -- such as batteries or autonomous vehicle systems -- can also be considered part of the electric vehicle industry.
Even though all the major car companies, including Ford (NYSE:F) and General Motors (NYSE:GM), are developing and/or manufacturing at least one model of electric vehicle, they’re not usually considered electric car companies because their primary products aren’t electric. The best electric car company stocks are generally sold by companies that are already producing and selling electric cars rather than just planning to do so.
Electric car stocks on the map
| Company | Headquarters | Notable Models |
|---|---|---|
| Tesla (NASDAQ:TSLA) | Palo Alto, California | Model 3 and Model S sedans, Model X and Model Y crossovers |
| NIO (NYSE:NIO) | Shanghai, China |
ES8 and ES6 SUVs, EC6 crossover |
| Rivian (NASDAQ:RIVN) | Irvine, California | R1T truck, R1S SUV |
Source: company websites
1. Tesla: The industry leader
Any list of electric car stocks needs to include the granddaddy of them all, Tesla. Elon Musk’s electric car company had a banner year in 2021. Tesla delivered about 936,000 vehicles, with 308,000 of them delivered in the fourth quarter alone. Most of the vehicles were Model 3 sedans and Model Y crossover SUVs. The company is building two new gigafactories -- meaning giant factories -- in Berlin and Austin, although the German location has faced multiple delays.
On top of soaring deliveries, Tesla is now producing profits without relying on the sale of regulatory credits. Net income topped $5.5 billion in 2021, up from just $721 million in 2020; less than one-third of its profit came from regulatory credits.
The company’s success has contributed to an epic increase in its stock price, making Tesla the most valuable car company in the world. Over the past three years, Tesla's stock price increased by more than 1,300%. This rally has certainly raised some questions about the company’s lofty valuation, especially relative to traditional automakers.
Supply chain issues are affecting all automakers, and Tesla is not immune. The company has delayed its Cybertruck and Roadster to 2023, and it doesn’t plan to introduce any new vehicles this year. Tesla may find it difficult to keep up its impressive growth rate if the supply chain doesn’t cooperate.
2. NIO: A Chinese SUV specialist
Chinese electric car maker NIO has been publicly traded since September 2018, but several initial public offerings (IPOs) by other Chinese electric car makers -- such as Li Automotive (NASDAQ:LI) and Xpeng (NYSE:XPEV) -- have increased investor interest in NIO.
NIO delivered 6,131 vehicles in February, up just 9.9% year over year as supply chain issues hurt production. The company has now delivered more than 182,000 of its ES8, ES6, and EC6 vehicles, and it’s preparing to begin deliveries of its ET7 sedan in early 2022.
NIO is focusing on the Chinese electric SUV market and competing with Tesla’s Model Y crossover SUV. The ET7 will be the company’s first sedan, rivaling Tesla’s Model 3 in China and expanding its product lineup.
3. Rivian: A lot to prove
Investors were very excited about Rivian when the EV company went public in late 2021. It was one of the biggest U.S. IPOs ever, with the company raising almost $12 billion. Rivian’s market value briefly topped $150 billion soon after its debut.
Rivian had barely delivered any of its electric trucks or SUVs when it went public, so investing in the stock was the ultimate leap of faith. The company managed to produce more than 1,000 vehicles in 2021.
Rivian has around 70,000 preorders. These orders, however, are fully refundable, so they may not necessarily be indicative of the true demand for the company’s vehicles. The company upset customers in March by announcing substantial price hikes affecting future deliveries, hitting almost everyone who had preordered a vehicle. Rivian reinstated the original prices for preorders after customers complained, but the move likely damaged the brand.
Rivian stock has crashed since peaking in late 2021, with the company now worth about $46 billion. That’s still a wildly optimistic valuation, so investors need to understand that Rivian is one of the riskier ways to invest in the electric car industry.
Other electric car technology stocks
Two other EV manufacturers may be worth considering: Lordstown Motors (NASDAQ:RIDE), which produces electric pickups, and electric delivery van manufacturer Workhorse (NASDAQ:WKHS). However, both companies are dealing with some issues.
Lordstown warned last year that it didn’t have enough cash to begin commercial production of its Endurance truck, which represented an about-face from what the company had said a few months earlier. The company is now shifting to a contract manufacturing model, and it only expects to produce 500 vehicles this year.
Meanwhile, Workhorse is being probed by the U.S. Securities and Exchange Commission and the U.S. Department of Justice. The company doesn’t expect to produce any vehicles in the first half of 2022, and it plans on selling about 250 vehicles by the end of the year.
If you want to diversify your portfolio exposure to the EV sector and stay away from controversy, an alternative is to buy stock in any of these companies:
- QuantumScape (NYSE:QS): Maker of EV lithium batteries.
- Blink Charging (NASDAQ:BLNK): Producer of electric car charging stations.
- Hyliion (NYSE:HYLN): Manufacturer of EV drivetrains.
- Velodyne Lidar (NASDAQ:VLDR) and Luminar (NASDAQ:LAZR): Makers of autonomous driving technologies, such as Lidar.
- Ballard Power Systems (NASDAQ:BLDP) and Plug Power (NASDAQ:PLUG): Developers of hydrogen fuel cell vehicle technologies.
Yet another option is to buy shares of Lucid Group (NASDAQ:LCID). The luxury EV maker has about 25,000 reservations for its Lucid Air, and it’s delivered about 300 of those vehicles so far. Lucid expects to manufacture as many as 14,000 vehicles this year, which is lower than a previous estimate of 20,000 vehicles due to supply chain issues. Lucid is valued just shy of $40 billion, making the stock an exceptionally risky investment.
Electric car ETFs
Investors seeking portfolio exposure to the electric car market but who don't want to select individual stocks can buy shares in exchange-traded funds (ETFs). There are plenty of options when it comes to electric vehicle ETFs, although none are pure-play investments in EVs.
The Invesco PowerShares WilderHill Clean Energy ETF (NYSE:PBW), which tracks the performance of the WilderHill Clean Energy Index, invests broadly in clean energy. While no one stock comprises more than 10% of the fund’s holdings, this ETF owns the stocks of plenty of electric carmakers. The stocks of NIO, Tesla, Workhorse Group, Kandi Technologies (NASDAQ:KNDI), and ElectraMeccanica Vehicles (NASDAQ:SOLO) are all held by WilderHill. The fund also owns shares of Blink Charging, lithium-ion battery maker Livent (NYSE:LTHM), and Plug Power.
The Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV), as its name implies, invests in makers of electric and self-driving cars. But the fund mainly focuses on traditional automakers, such as Toyota, that are making forays into this space, along with large tech companies, including Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG), that are developing autonomous vehicles.
What makes the electric car industry different?
The electric car industry differs from the traditional automotive industry because it is so new. Until recently, very few companies manufactured any kind of electric vehicle, but now every major automaker in the world is developing or producing an EV.
Because major interest in EVs is so recent, the only established industry leader is Tesla. Start-up EV makers can compete fairly well with traditional automakers for EV market share, making it difficult to discern which companies will ultimately dominate the electric car market. That unpredictability makes investing in the electric car industry more risky than adding portfolio exposure to the automotive industry as a whole.
The future of the electric car industry
The U.S. infrastructure bill that was signed into law late last year ultimately dropped some EV-related proposals, but funding for EV charging made the cut. The bill provides $5 billion for states to build out a national changing network, and an additional $2.5 billion is earmarked for grants. Access to charging infrastructure is still a pain point for EV owners, so this multi-billion- dollar investment in charging should help boost the appeal of electric vehicles in the long run.
Many companies participating in the EV sector are going public, while legacy automakers plan to release a plethora of electric vehicles over the next five years. Investing in this highly competitive and fast-growing industry is likely to be profitable, but it's important to take steps to minimize your investment risk. Don't invest in just one electric car company but hold positions in several companies of various sizes and consider buying shares in an ETF.
