Tesla and other EV stocks are tanking … what’s behind the EV sector slowdown … where are we in the overall EV adoption cycle? … the EV stocks that Luke Lango and Louis Navellier like today
In investing, what is comfortable is rarely profitable.
That comes from billionaire Rob Arnott, founder and chairman of the board of Research Affiliates.
Now, that doesn’t necessarily make the inverse true, meaning uncomfortable investment set-ups are the key to profits. However, there’s a nugget of truth here worth considering.
When an investment feels uncomfortable, the average investor wants no part of it. Courageous investors who can see the bigger picture take advantage and buy at bargain prices.
Some months or years down the road when that investment has climbed substantially making it feel safer to add to a portfolio, the courageous investor is already sitting on hefty profits when the average investor and the herd are piling in.
Oftentimes, it’s the courageous investor who’s selling to the average investor…not too long before a bullish move tops out.
Our goal is to be courageous, wise investors with vision, taking advantage of opportunities that might not always feel “comfortable” yet eventually become quite profitable.
As we look at today’s market, where do we find a heavy concentration of discomfort?
The EV sector.
The discomfort grew even worse last week after Tesla reported poor Q4 earnings. The EV manufacturer came in below estimates on both revenues and profits.
Adding to the pain, Tesla’s forward guidance included a warning that vehicle volume growth “may be notably lower” this year than last year.
For more, let’s go to legendary investor Louis Navellier and his Growth Investor Special Market Podcast from last Friday:
Tesla sold off because it missed analyst estimates. It also would not provide this year’s sales guidance because there’s a lot of uncertainty out there. Elon Musk cited the interest rate environment as one.
The other thing overhanging Tesla is Elon Musk is demanding 25% ownership. He wants the board to give him new stock grants, and/or create a new class of shares.
So, there’s a fear that Elon Musk may not be supporting Tesla as much in the future.
What’s really happened to Tesla is they’ve hit a wall competing with China. China does make cheaper EVs. They use predominantly LFP batteries – those are iron phosphate batteries, which are cheaper.
So, all over Asia and in Europe, Tesla is competing with these Chinese EVs. And there’s a growing fear that China will dominate the EV business.
But it’s not just Tesla’s stock that’s been hurting
For a 30,000-foot view on what’s happening in the broader EV sector, let’s turn to our hypergrowth expert Luke Lango, editor of Innovation Investor:
It’s a bloodbath out there.
The entire sector has been in decline, led by TSLA, which has plummeted around 12% since announcing Q4 earnings.
And the bad news is that this EV Winter is far from over.
Dozens of EV startups will go bankrupt, which means many EV stocks will go to zero. Poorly positioned investors will likely lose everything.
Many poorly positioned investors have already lost close to everything.
The data below come from analyst Charlie Bilello on X. He’s showing a basket of EV stocks (or companies related to EVs) and how far below their respective 52-weeks highs they’re currently trading.
Don’t miss Rivian -92%… Lucid -95%… and Fisker -97%. Not to mention Proterra, Arrival, and Faraday all down more than 99%.
| But it’s not all bad news.
Let’s jump back to Luke for how he’s viewing this bloodbath: |
But here’s the good news: This EV Winter will end. And when it does, the EV stocks that survive will absolutely soar.
And well-positioned investors could stand to make fortunes.
Beyond fears of Chinese market domination, what’s behind the weakness in the EV sector, and what does it mean for investors?
It wasn’t long ago that EVs were red hot, and investors were making money hand-over-fist. That’s no longer the case. But Luke urgers his readers to view what’s happening in the right context.
He explains that every new technological revolution goes through the same three steps: invention, consolidation, then boom.
When a new technology is first introduced, the enthusiasm is off the charts. This leads to a premature euphoria about that technology’s potential applications.
But then comes the disappointing reality…
Here’s Luke describing that disappointment, as well as what comes after:
Then, a sobering reality sets in. New technology will not change the world overnight – it will take time.
Consumers and investors alike cool on the industry. The market stalls. Dozens of startups in that tech industry go bankrupt. And the whole industry consolidates around a few solid names.
Once that happens, the technology starts to live up to its early promise and starts to change the world.
Consumers and investors jump back on the bandwagon. And the tech firms that survived the sector’s consolidation become industry titans.
This is exactly what happened when the automobile was first introduced to the world.
Today, the EV sector finds itself in the “sobering reality” part of this cycle
The EV market is slowing. We’re seeing this show up in the data, most notably in EV market share within the broad auto market.
Luke highlights how from mid-2021 to mid-2023, EV sales penetration soared from 3% to 8%. But over the past six months, EV sales penetration has plateaued around 8% of total auto sales in the U.S.
You can see this below. The orange columns represent EV sales penetration since 2021, which is stalling out. The descending blue line is EV sales growth.
Luke warns his readers not to expect a turnaround anytime soon:
This is the consolidation phase of the EV industry. Over the next 12 months, the industry will keep struggling.
Dozens of EV startups will file for bankruptcy. Many EV stocks will head to zero. And some investors are likely to lose everything.
It will get rough for the industry in 2024.
But some EV firms will survive. And those that do stand to make fortunes once this winter ends, likely in 2025.
Tying back to the top of this Digest, the question becomes “which EV stocks have Luke’s and Louis’ eye today – even though investing in them might feel uncomfortable?”
Where Luke and Louis are EV shopping
We’ll begin with Luke:
Rivian (RIVN) still looks strongly positioned to survive this EV Winter.
The company has huge financial backing, and it’s firing on all cylinders with its manufacturing ramp. Plus, it seems like Rivian’s cars are popping up everywhere, and customers love its vehicles.
QuantumScape (QS) is another top contender here.
The company is developing next-gen solid-state batteries that could transform the whole industry. And it just reported some breakthrough data that suggests that its batteries are close to viable for actual cars.
As for other stocks in the EV space, they are probably best avoided.
For Louis, there’s one name that rises above all the rest (though note the battery company that overlaps with Luke’s picks):
My big long-term winner for EVs is going to be Volkswagen. One reason is battery technology. They’ve invested heavily in batteries.
Gotion is one of the companies they’ve invested in. They make an LFP battery with manganese. It has the same energy density as lithium ion. You can charge it 100% and it works great in cold climates. And when you crash the car, it doesn’t catch on fire.
Another reason I like Volkswagen is because they’ve invested in QuantumScape. That’s a solid-state battery company. They’re making some progress.
And if consumer trends move away from EVs and remain with hybrids and internal combustion vehicles, Volkswagen still wins. Their sales are up sharply in the last year.
So, Volkswagen is the big winner in my opinion – and they already dominate Europe.
Bottom line: The EV sector has been punishing investors, and relief isn’t yet in sight. But for investors able to stomach the discomfort, an investment in leading EV stocks today has the potential to pay off handsomely in the future.
Here’s Luke to take us out:
Mass industry consolidations are tough to see in real-time. But they are necessary. And they lay the foundation for the next generation of industry winners.
So, don’t be afraid of this EV Winter. Embrace it.
And use it to put yourself in the right stocks at the right time.
Have a good evening,
Jeff Remsburg
