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After Tesla, EV Stock Choices Are Clear but Not Great

After a brutal 2022 for electric-vehicle stocks, shares of Li Auto might be one investment to consider.

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Courtesy of Li Auto

Shares of electric-vehicle producers have been hammered in 2022. No stock has escaped, not even
The declines have left some growth stocks at attractive levels.

A couple stand out. But the new EV ideas are only for investors with the strongest stomachs.

Sector declines have left only nine pure-play EV stocks with substantial market capitalizations.

(ticker: TSLA), of course, is the most valuable despite being cut in half so far in 2022. The company’s market capitalization is still almost $700 billion, including management stock options that are likely to become shares some day.

The other eight, in no particular order, are:
Polestar Automotive
Rivian Automotive

), and
Li Auto

The total value of the non-Tesla group is roughly $200 billion, down about 58% compared with the end of 2021. Including Tesla, about $900 billion in EV market capitalization has been wiped out so far in 2022.

There are several reasons why. Rising interest rates and inflation have hit all automotive stocks. There is more EV competition coming from traditional car companies. China’s zero-Covid policies and a persistent semiconductor shortage have constrained global auto production. Geopolitical tensions between the U.S. and China haven’t helped either.

The result of all that is an average stock drop of almost 60% for the group of nine. That comes after a sparkling 2021, when nine shares returned 45% on average.

There is reason to be hopeful about the future though. EV penetration of new-car sales is still increasing. And new-purchase tax credits will reduce the cost of buying an EV for many Americans starting in 2023. There should be some opportunities for investors looking for a deal on EV stocks.

Tesla and BYD are the obvious choices. Those are the two that actually produce profits and free cash flow. Tesla stock now trades for about 32 times estimated 2023 earnings, according to FactSet. BYD American depositary receipts trade at about 21 times. Both companies are expected to grow sales north of 40% in 2023 compared with 2021.

The rest of the EV companies don’t generate earnings and cash flow, and need to be evaluated by Wall Street ratings and enterprise value-to-sales ratios. The two that stand out as relatively attractive are
Li Auto.

More than 80% of analysts following XPeng rate the ADRs shares at Buy. More than 90% rate Li ADRs at Buy. Wall Street likes those two companies, as the average Buy-rating ratio for a stock in the
S&P 500
is about 58%.

Li is also expected to generate free cash flow in 2023. That’s another positive. XPeng isn’t, but the ADRs, net of cash on hand, are trading for about 0.2 times estimated 2023 sales. That is 10 times cheaper than the average sales-based valuation of the other EV stocks, excluding the larger, profitable BYD and Tesla.

Both Li and XPeng look like opportunities. Geopolitical tensions and falling EV prices in China will make pulling the trigger hard for investors, though.

The challenge for investors looking to buy XPeng ADRs is even greater. Shares are down about 85% year to date, the worst performance in the group. And the ADRs have suffered a couple of downgrades to Sell in recent weeks. There are rumblings from the Street that the company’s new G9 crossover vehicle isn’t selling well.

Maybe investors looking for EV exposure should just stick with Tesla. That might be a safer bet than, say, XPeng ADRs, but a Tesla purchase it isn’t without controversy. The spread between the top and bottom analyst target prices amounts to more than 250% of Tesla’s current stock price. XPeng’s spread is 500%. The average bull-bear spread for megacap stocks including
(AAPL) is about 90% of the current stock price, on average.

Write to Al Root at


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