A new revolution is brewing in the automotive market. And the types of EV stocks you buy will depend entirely on a brand-new, underrated megatrend in the electric car industry: The Great EV Consolidation.
In short, the number of electric vehicle companies will dramatically shrink over the next few years, not unlike that of the gas-powered car boom in the early 1900s. Back then, nearly 500 companies entered the race to capitalize on this technological marvel. But by 1930, less than 50 of them were still in operation. Cherry on the top: Just three automakers made up 80% of the market.
It’s a natural evolution. And the same thing is happening with EVs today.
That means that there are both fantastic long-term investments and short-term trades to play the Great EV Consolidation. But that’s only if you pick the right stocks.
To prove my point, electric trucking company Nikola (NKLA) just agreed to acquire battery maker Romeo Power (RMO)! We’ve said before that the EV industry is too crowded, and we’re due for a “great consolidation.” Nikola’s buyout of Romeo is just the beginning.
When a new technological paradigm emerges, everybody wants to start a business around it because they see an immense opportunity to strike it rich. But the market isn’t big enough to sustain all those startups. As an industry matures, it consolidates around a few players. Companies left out in the cold either go bankrupt or get acquired.
Guess what? The EV market is maturing. Every time I leave the house, I see a Tesla (TSLA) Model 3 or Model S. I often find myself in a “Tesla sandwich,” flanked by Tesla EVs on the highway.
Indeed, June 2022 saw a record-high number of EV auto sales. The industry has started to become meaningful to the global economy. And I believe that over the next 12 to 36 months, two things will define the EV industry – rapid growth and rapid consolidation.
The top players that arise out of the EV boom will differentiate themselves from the pack in terms of some major value-add. (Think cost, design, performance, or branding). Those electric car titans will attract all the consumer demand and reap all the rewards of the EV Revolution. And they’ll squeeze out 90% of the industry.
So, when I look at the EV landscape today, I see a graveyard with a few shining stars.
To make some short-term gains, look for small-cap EV stocks that could be great acquisition targets. And make sure they are not at risk of bankruptcy.
These companies will have an edge over their competitors, plus unrivaled talent and technology.
Investors who buy high-quality small-cap EV stocks that are primed to be bought out by future titans of industry will see tremendous gains over the coming few years.
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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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