In this article, we discuss the 10 best EV stocks for the long term. If you want to skip our detailed analysis of these stocks, go directly to the 5 Best EV Stocks For The Long Term.
The pandemic-ravaged 2020 was a defining year for electric vehicles in many respects. Despite the virus-related setbacks for the auto-industry in general, electric car registrations increased by 41% with a record 3 million EVs registered across the world, even as global car sales dropped by about 18% during the period. According to a report by the International Energy Agency (IEA), there were 10 million EVs on the roads across the world at the end of 2020. Europe, the agency claimed, had overtaken China as the largest EV market in the world.
Perhaps the emergence of Europe as the major EV market has helped push along the planned investments into EVs by traditional car manufacturers. 18 of the top 20 auto firms in the world are now transitioning towards EVs, and even the makers of commercial vehicles have set their eyes on the new technology. IEA estimates that consumer spending on EVs jumped to $120 billion in 2020. This figure is expected to grow at a compound annual growth rate of more than 26% over the next few years, market analysts predict.
Investors who want exposure to some EV investments should follow the smart money as a way of making inroads into the market. Some of the top EV stocks for the long term according to hedge funds include Freeport-McMoRan Inc. (NYSE:FCX), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Tesla, Inc. (NASDAQ:TSLA), among others discussed in detail below.
These were picked based on their business fundamentals and analyst ratings. The products of each company along with long-term growth catalysts are discussed below to provide readers with some context for their investment decisions.
The hedge fund sentiment around each stock was calculated using the data of 873 hedge funds tracked by Insider Monkey.
Why pay attention to hedge fund holdings? Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Best EV Stocks For The Long Term
10. BYD Company Limited (OTC:BYDDF)
Number of Hedge Fund Holders: 2
BYD Company Limited (OTC:BYDDF) is a Chinese automobile manufacturer that has invested heavily in EVs in the past few years. Warren Buffett, a legendary value investor known for his long-term bets, owns an 8% stake in the company purchased back in 2008. BYD recently shipped 100 units of the new all-electric Tang SUV to Norway as it seeks to deliver 1,500 EVs to the country by the end of the year. Norway is seen as the path to a tough European EV market by Chinese carmakers.
Besides international expansion, BYD Company Limited (OTC:BYDDF) has also been posting healthy sales numbers. In April this year, the company sold more than 16,300 electric vehicles, more than the two next biggest EV makers combined.
Just like Freeport-McMoRan Inc. (NYSE:FCX), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Tesla, Inc. (NASDAQ:TSLA), BYD Company Limited (OTC:BYDDF) is one of the stocks that hedge funds are buying.
9. Lithium Americas Corp. (NYSE:LAC)
Number of Hedge Fund Holders: 9
Lithium Americas Corp. (NYSE:LAC) features on our list of long-term EV stocks because the company operates as a resource firm with core interests in lithium deposits. Lithium is an important raw product for the making of EV batteries around the world. Car makers are scrambling to invest in battery tech as range becomes a key selling point of EVs. Japanese auto firm Toyota recently announced a plan to invest $13 billion into battery technology over the next decade. Investments in lithium would be a part of this plan.
Lithium Americas Corp. (NYSE:LAC) has also benefited from the soaring prices of lithium as demand for the metal exceeds supply. Market analysts predict that lithium prices will triple by 2025. Lithium Americas will be a direct beneficiary of this.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Axel Capital Management is a leading shareholder in Lithium Americas Corp. (NYSE:LAC) with 408,130 shares worth more than $6 million.
“Lithium Americas: The volatility noted above in LAC has resulted in solid returns via our options trades around our core equity position. At the current time, we are short calls on LAC, as we have done multiple times throughout the position’s life, expiring on May 21, 2021, at a $17.5 and $22.5 strike price. The volume of contracts sold at each strike corresponds to the size of the equity position we want should the calls expire in the money, and the underlying equity gets called away from us. The thought process behind this trade construction is that if we know the size of the position we want at a particular price point, there is no reason not to accumulate additional returns by pre-selling the stock we would have sold anyway.
High levels of volatility positively impact the price of options, increasing the premium we can earn from selling covered calls. To date, we have sold covered calls on LAC that have expired worthless four times, yielding a roughly 7% return on the equity position’s current value or 71bps for the portfolio overall. The outstanding covered calls appear to be trending towards a similar worthless expiration. If they do, the covered call trades on LAC will result in us owning the shares with committed capital of -$0.28 per share.
Although we believe in the fullness of time LAC warrants a $30+ valuation, the prices achieved in early January of this year were not justified by the underlying fundamentals. Some will argue we should have sold down our position. We had already established our option positions and believe LAC is an emerging major in the lithium mining industry. Thus, we decided to maintain the position unchanged. Although still relatively high, the current $15 per share valuation is not crazy compared to where we think the firm should be trading based on fundamentals, so we are no longer overly concerned with the position as is.
LAC management also took advantage of the volatility issuing stock on January 22 for $22 a share. The ~$400 million in proceeds will be used to develop Thacker Pass, the US-based clay lithium deposit, which will likely be the largest producing Lithium mine in America when turned on. In our opinion, the stock issuance could not have come at a better time. LAC management has advanced the project through various development stages (de-risking), but with the share issuance, they have significantly reduced the need to bring in an outside partner to develop the asset as the first phase of the project is expected to cost roughly $581 million. After-tax and at an 8% discount rate, the Thacker Pass project’s present value is approximately $2.6 billion (the firm’s current market capitalization is $1.5 billion). Although the share issuance was dilutive, increasing the total shares by 17%, we believe it will, in the long run, prove a forward-looking, value-additive decision by management.
The lithium market remains an area of interest and focus for us. This reflects our belief that the most exciting investment opportunities to capture secular trends in EV’s and batteries are found upstream in the mining industry. It is also a reflection that there is a greater diversity of lithium investment opportunities relative to other battery metals.”
8. ChargePoint Holdings, Inc. (NYSE:CHPT)
Number of Hedge Fund Holders: 17
As the adoption of EVs accelerates, a key point of contention is the availability of charging networks. Even as carmakers like Tesla, Inc. (NASDAQ:TSLA) market their own charging stations to solve this problem, governments around the world are partnering with specialist EV charging providers like ChargePoint Holdings, Inc. (NYSE:CHPT) to improve charging infrastructure. The company beat market expectations on revenue for the second quarter by $7 million.
Stifel analyst Stephen Gengaro recently initiated coverage of ChargePoint Holdings, Inc. (NYSE:CHPT) stock with a Buy rating and a price target of $29, noting the firm was well-positioned to benefit from EV charging growth in the next three decades.
At the end of the second quarter of 2021, 17 hedge funds in the database of Insider Monkey held stakes worth $149 million in ChargePoint Holdings, Inc. (NYSE:CHPT).
7. QuantumScape Corporation (NYSE:QS)
Number of Hedge Fund Holders: 26
QuantumScape Corporation (NYSE:QS) makes and sells solid-state lithium batteries. The stock has jumped in the past few months as the demand for EVs rises and automakers turn to third-part battery developers to meet their EV battery needs. JPMorgan analyst Jose Asumendi has a Neutral rating on the stock with a price target of $35. The analyst believes the firm will play a “vital” role in the development of battery tech in the next few years.
QuantumScape Corporation (NYSE:QS) is also one of the companies that stand to benefit from the tax breaks and increased investment in the EV sector that is part of a new American Jobs Plan of US President Biden. The House approved the plan and has sent it to Biden for approval.
At the end of the second quarter of 2021, 26 hedge funds in the database of Insider Monkey held stakes worth $321 million in QuantumScape Corporation (NYSE:QS), down from 29 in the preceding quarter worth $534 million.
“QuantumScape Corporation is an early-stage developer of solid-state battery technology for electric vehicles aimed at improving key aspects of batteries, including safety, charging times, energy density, and cost. The company went public via a SPAC in November. After rapid appreciation, the stock came under pressure when the company raised additional capital to help accelerate its commercialization process. We exited our small position, as described below.
We sold QuantumScape Corporation, an early-stage solid-state electric vehicle battery innovator, because it was an undersized position with an ambitious valuation. We will continue to monitor QuantumScape’s developments and may revisit the company as an investment at a future point in time.“
6. NIO Inc. (NYSE:NIO)
Number of Hedge Fund Holders: 34
NIO Inc. (NYSE:NIO) is another Chinese EV maker that has given tough competition to Tesla and BYD in the EV space over the past few years. However, after posting record delivery numbers in the preceding months, the firm revealed earlier this month that it delivered 3,667 vehicles in October, down nearly 28% year-on-year due to supply chain issues that have led to production cuts. Deutsche Bank analyst Edison Yu has backed the stock to bounce back from these near-term setbacks.
Other analysts are also bullish on NIO Inc. (NYSE:NIO) stock in the long-term as the company is the largest EV maker in China. Goldman Sachs analyst Fei Fang has a Buy rating on the shares with a price target of $56, implying upside potential of 65%.
At the end of the second quarter of 2021, 34 hedge funds in the database of Insider Monkey held stakes worth $2 billion in NIO Inc. (NYSE:NIO), up from 28 in the preceding quarter worth $1.3 billion.
Alongside Freeport-McMoRan Inc. (NYSE:FCX), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Tesla, Inc. (NASDAQ:TSLA), NIO Inc. (NYSE:NIO) is one of the stocks attracting the attention of elite investors.
“Nio, Inc. (NIO): It’s stock up 360% since the beginning of June on no news, and one of our more troublesome short positions, the Chinese electric vehicle manufacturer is valued at a whopping $17bln on trailing revenue of only $1.1bln. In 2019, the business ran a -17% gross margin, a -140% EBITDA margin & burned ~$1.5bln in cash in 2019. The stock has become one of the most popular stocks among retail traders with approximately 250,000 accounts holding the name just on the popular Robinhood trading platform.”
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Disclosure. None. 10 Best EV Stocks For The Long Term is originally published on Insider Monkey.