By Andrey Dashkov, analyst, Casey Research
We’re entering a new era of the electric vehicle (EV) revolution.
The first stage is over. It was the period of early-stage excitement and high valuations.
For instance, Tesla was trading at 31 times its annual revenue during its peak in February 2021. This multiple has fallen to 11.9x as of writing.
For comparison, this multiple for the S&P 500, a broad market index, is 1.7x.
Even the Nasdaq, the tech-heavy index whose companies trade at relatively high multiples, has a price-to-sales ratio of 4.3x.
In other words, investors are still excited about Tesla way more than they are about broad markets. But they have also cooled down quite a bit compared to 2021.
To be fair, some of the initial excitement for electric vehicles was justified. These cars have changed the automotive landscape forever. Nobody is going to argue that the world will ever go back to 100% gas-powered cars.
But some of that optimism was unfounded.
Put simply, not every EV start-up will grow to Tesla’s size.
As with any emerging trend, there are winners and losers.
So today, I’ll tell you about the companies well-positioned to benefit from this massive trend.
Winning in the EV Business Is All About Execution
Investors have been willing to cut EV companies some slack when it comes to reaching their milestones.
After all, EV firms are essentially start-ups. Most of the time, the value of their stock is based on expectations of future performance.
And sometimes, those expectations are completely out of touch with reality.
Which is part of the investing process. You win by being right about your expectations.
For example, Tesla missed a lot of its self-imposed, aggressive deadlines, but overall, it managed to grow its sales. So there is a reason for the impressive spike of its share price.
But when management is wildly optimistic, but the actual execution doesn’t catch up, problems can occur.
So regardless of which company you invest in, you need to pay attention to how good the management team is at executing its vision.
And this applies to companies at all stages…
Why “People” Is Our Most Critical Due Diligence Check
Doug Casey’s famous “Nine Ps” investment system starts with “People.” Or more specifically, the people that run the company in consideration.
At the very least, management needs to be competent and honest.
For early-stage mining companies, that means raising money, hiring high-quality technical specialists, and being good at investor relations. The company’s story needs to be heard. Too many companies quietly die despite their technical successes.
The same logic applies to other early-stage companies.
When it comes to more established ones, cost control and the changing business environment present the biggest challenges.
Take Volkswagen, for example.
It’s one of the world’s most-established automakers.
And it’s changing its business dramatically. By 2030, one-half of its vehicles could be electric.
Just recently, it ran into some issues…
After selling almost 100,000 EVs in the first three months of this year, it sold out of battery-powered cars in the U.S. and Europe.
But this is a good problem for Volkswagen to have… It means we are in a new era of the EV saga.
Legacy Carmakers Over Start-Ups
It’s time for investors to consider legacy carmakers that are turning to EVs.
Companies like Volkswagen and Ford are working hard to produce reliable EVs on a huge scale. They may run into temporary issues, such as supply-chain bottlenecks, but they’re already producing tens – if not hundreds of thousands – of cars.
For example, Ford is estimated to produce 15,000 F-150 Lighting EV trucks this year.
And its Dearborn, Michigan production facility is scaling up to make 10 times more cars per year.
If I were to choose between a start-up EV company and an established player like Ford right now, I have more confidence that the latter would meet ambitious production goals.
So I’d start looking at established “legacy” manufacturers that have demand worth order books stretching into 2023 and beyond.
It’s a safer bet, and it could prove to be lucrative as the EV market consolidates around several strong players.
Analyst, Casey Research
P.S. If you’re still interested in putting some speculative money in the EV space… check out Dave’s presentation right here. It’ll show you how to put the smallest amount of money to work… for the biggest potential gains.