- These five electric vehicle stocks are poised for 100% returns in the next 12 to 24 months after a deep correction.
- XPeng (XPEV): New models will continue to boost deliveries growth. International expansion is another positive catalyst.
- Tesla (TSLA): Likely to remain the market leader, Tesla has an attractive pipeline for 2023 and 2024 and robust free cash flows.
- Lucid (LCID): Entry into Europe and new plant in Saudi Arabia are long-term positives for Lucid.
- Rivian (RIVN): With $18 billion in cash and equivalents, there is ample headroom to invest in manufacturing expansion and product development.
- Li Auto (LI): An out-performer among Chinese electric vehicle stocks, its free cash flows will continue to swell with growth in vehicle deliveries.
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Electric vehicle (EV) stocks were among the hottest stocks during the rally after March 2020. With multi-year growth tailwinds, the surge in EV stocks was justified to a large extent. However, there was an element of euphoria.
Things have changed significantly in the last two quarters. The industry has continued to face supply chain issues. Additionally, raw material inflation is likely to impact margins. It’s also worth noting that growth stocks have been beaten down with liquidity tightening fears. This has accelerated the correction in EV stocks.
In the next few quarters, a potential recession is another headwind for the industry. However, I believe that the correction is already overdone. Stocks discount positives or headwinds well ahead of a possible event.
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Let’s focus on five electric vehicle stocks that can be value creators. These five electric vehicle stocks are poised for 100% returns in the next 12 to 24 months after a deep correction:
Lucid Group, Inc.
Rivian Automotive, Inc.
Li Auto Inc.
Electric Vehicle Stocks: XPeng (XPEV)
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Among Chinese EV stocks, XPeng (NYSE:XPEV) would be my top pick. In the last six months, the stock has corrected by 58%. Given the growth visibility beyond the near-term headwinds, XPEV stock is positioned to double in the next 12 months.
For first quarter (Q1) 2022, XPeng reported 159% growth in vehicle deliveries to 34,561. For the same period, revenue surged by 152% year-over-year. With supply chain challenges, deliveries growth is likely to be muted over the next two quarters.
However, the stock has discounted this concern. With new models, deliveries growth will accelerate once supply chain issues are resolved. XPeng is also being aggressive on its European expansion.
With deliveries growth and operating leverage, vehicle margin is expected to improve in the coming years. The company also ended Q1 2022 with cash and equivalents of $6.5 billion. There is ample flexibility to invest in international expansion and ramp up manufacturing capacity through 2022.
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Tesla (NASDAQ:TSLA) has corrected by 46% from the 52-week high of $1,243.49. This presents a good opportunity to accumulate the market leader in the EV segment.
Even with supply chain concerns, Tesla delivered 310,048 vehicles in Q1 2022. For the same period, the company reported operating cash flow of $4 billion. It’s also worth noting that Tesla had a cash buffer of $17.5 billion as of March 2022.
With robust cash flows, the company’s financial position is likely to get stronger. Importantly, it will enable robust investment in research and development. Tesla already has an attractive pipeline that includes its Cybertruck, Roadster and Tesla Semi. The new models are likely to boost deliveries growth in the next 12 to 24 months.
Additionally, Tesla’s first Gigafactory in Europe opened in March 2022. The factory has a production capacity of 500,000 vehicles. With Europe looking to reduce energy dependence on Russia, the factory comes at the right time. Once production gains traction, cash flows are likely to swell further.
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Overall, the deep correction is a good opportunity to accumulate TSLA stock. Over the next 12 to 24 months, the stock has the potential to double.
Electric Vehicle Stocks: Lucid (LCID)
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Lucid (NASDAQ:LCID) stock is another name among electric vehicle stocks that has plunged in the last few months. I believe that the stock is worth accumulating around $15 levels.
In terms of disappointments, Lucid revised the production guidance for 2022 on the downside. This factor is already discounted in the stock.
Among positives, the company recently received an order from the government of Saudi Arabia for purchase of up to 100,000 vehicles. The company has also been taking online orders from 17 countries for Lucid Air. Therefore, there seems to be significant focus on aggressive international expansion.
Lucid is likely to report negative free cash flows (FCF) in the coming years. That should not be a concern if deliveries growth remains robust. With operating leverage, the company will be positioned to sustain healthy cash flows.
It’s also worth noting that Lucid reported cash and equivalents of $5.4 billion as of Q1 2022. The liquidity buffer is sufficient to cover for capital investments and cash burn over the next 12 to 18 months. Beyond this, further dilution of equity is likely.
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Rivian (NASDAQ:RIVN) stock has plunged from post-listing highs of $179.50 to current levels around $27. I believe that it is a golden opportunity to accumulate RIVN stock. Recently, Goldman Sachs (NYSE:GS) opined that Rivian is the company that’s likely to challenge Tesla in the long-term.
The company has ambitious growth plans, which include a capacity expansion to production of 600,000 vehicles annually.
The company’s R1T vehicle has also witnessed encouraging orders growth. Besides that, the electric delivery van order from Amazon (NASDAQ:AMZN) also provides long-term revenue visibility.
Rivian also has $17 billion in cash and equivalents as of March 2022. This will enable the company to pursue aggressive growth plans in the next 12 to 24 months.
Of course, cash burn is likely to sustain in the next few years. However, if the order backlog continues to swell, RIVN stock will trend higher from oversold levels.
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It’s also important to note that the market for electric delivery vans is expected to grow at a CAGR of 17% through 2030. Therefore, the order from Amazon is just the beginning for Rivian.
Electric Vehicle Stocks: Li Auto (LI)
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On a 12 month basis, Li Auto (NASDAQ:LI) has been an outperformer compared to other Chinese EV stocks. A key reason is that Li Auto continues to report free cash flows on a sustained basis.
For Q1 2022, the company reported operating cash flow and FCF of $289.3 and $79.2 million, respectively. With robust annualized cash flow visibility, LI stock has remained resilient.
It’s also worth noting that the company’s vehicle deliveries have increased on a sustained basis. The operating leverage vehicle margin has also improved.
Li Auto commenced mass deliveries of Li ONE in November 2019. The upgraded version of the model was released in May 2021. Therefore, the deliveries growth has entirely been for just one model. With plans for a broader product line in the next few years, there is robust revenue growth visibility.
As of March 2022, Li also reported cash and equivalents of $5 billion. Therefore, there is ample flexibility for investment in product development and new store expansion.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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