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The Li Xiang One PHEV SUV.
Courtesy of Li Auto Inc.
The stocks of electric vehicles are Wall Streets Wild West. EV stocks tracked by Barrons are up more than 160% since the start of the year, led by Teslas
250% increase. Li Auto, a maker of electric SUVs with on-board generators, rose 43% when it debuted on the market Thursday.
Volatility is not lacking in the sector. Shares of battery and fuel cell truck maker Nikola (ticker: NKLA), for example, rose double-digit percentage points on seven separate days in July, and shares fell 56% in the month. . Still, the stock is up over 190% since the start of the year.
All of this action leaves Wall Street a little puzzled.
Most EV stocks are now trading above analysts’ price targets. And these are the EV stocks tracked by Wall Street analysts. Four EV companies worth more than $ 15 billion, including Li Auto (LI), do not even have analyst coverage yet.
Instead of quickly raising or lowering stock prices and market targets, analysts are reluctant to write the worst-case scenarios, base scenarios, and best-case scenarios for EV stocks and leave it to investors. the care of determining the procedure to follow.
Analysts, in other words, are sitting on the fence. Still, such scenario planning is a good idea for investors, especially traders. This can help them plan what to do no matter what, which is especially important in an industry like electric vehicles.
Nikola’s investors are planning for the worst-case scenario. Shares plunged after rising 135% in June. It is now trading at $ 30. How bad can it get?
July-like declines for Nikola shares, which were catalyzed by the acquisition of warrants, are unlikely to be expected for a few months. The warrants give holders the right to purchase shares at a discount of $ 11.50 per share, in this case, and 24 million Nikola warrants have recently become exercisable. Most of the selling pressure related to the warrants is now over. Despite recent declines, Nikola stock is worth around $ 11 billion.
RBC analyst Joseph Spak’s worst-case scenario is $ 20 a share. Officially, he values the stock at the equivalent of Hold’em and has a price target of $ 46. Coming to $ 20 means Nikola hasn’t hit his estimate of the market share of the trucks he’s modeling in 2028.
But 2028 is still far away. This illustrates a problem that investors face with all EV startups. Nikolas’ ultimate success or failure will be determined in the future. This makes EV stocks, in the short term, very sensitive to changes in investor sentiment.
Nikolas’ correction to 56% was severe. It stalled around the 100-day moving average for stocks. The next worst-off train stop could cost around $ 21 a share. It is the moving average of the stocks over 200 days. This is very close to the fundamental case of Spaks.
Nikola announces his income on August 4. It’s the next catalyst for stocks, up or down.
The US-listed EV stocks we track, excluding Tesla (TSLA), are worth some $ 30 billion, more than Ford Motor (F). Include Tesla, and the number jumps to over $ 300 billion.
Tesla, the industry giant, is valued at around $ 750,000 per vehicle delivered, about 10 times more than General Motors (GM) on the same metric. What is actualized in Tesla’s shares, as well as the shares of small electric vehicle manufacturers, has been an increasingly high penetration of electric vehicles in the light vehicle market for years. Tesla stock is trading at $ 1,430.76.
New Street Research analyst Pierre Ferragu has a target price of $ 1,500 on Tesla and a Hold rating. This is a good place to look at the basic scenario of stocks. He believes Tesla can sell two to three million cars by 2025, which is roughly the size of BMW (BMW, Germany), with growth exceeding the industry since this year. It is a good reference for the fundamental assumptions that are reflected in the stock price today.
But 2025, like 2029 in Nikola’s case, is a long way off. What pushes Tesla higher next is better earnings for 2021. Tesla’s 2021 earnings estimates have fallen from around $ 9 per share to $ 16 per share in the past year. At this point, with stocks trading at 100 times estimated earnings for 2021, Tesla must continue to beat Street’s estimates to maintain the momentum in stock prices.
Wall Streets’ Best Scenarios for Tesla Stocks call out a number of different things. Some see Tesla selling over 10 million cars in the future. Others see Tesla selling full autonomous driving software and manufacturing EV powertrains for other automakers. Still others see value in Teslas battery storage and solar activities.
In the near term, the best-case scenario for Tesla stock is an increase in buying after its inclusion in the S&P 500, which the stock qualified for after its recent quarterly profit.
Inclusion would lead to further buying by index funds, and more buying than selling would push stocks up. The question is: how high can it go higher? Tesla stock is reportedly overbought on Wall Street at around $ 1,700. This is a very rough calculation, but it is a level where traders might decide to take profit.
An easier bull case is that of electric commercial van manufacturer Workhorse Group (WKHS). Its offer to replace 160,000 US Postal Service vehicles. If he wins, stocks at $ 15.52 will break above $ 20 and possibly approach the $ 27 target price set by Roth Capitals Craig Irwin.
Losing the offer would hurt. Whatever happens, Workhorse stock, up over 400% since the start of the year, will remain volatile. The same will be true for the actions of its EV peers.
Write to Al Root at [email protected]
