Investors’ appetite for electric car companies is growing exponentially thanks to rising sales, improved range and performance, and a wider variety of models across the socio-economic spectrum.
The International Energy Agency (IEA) estimates about 14 million vehicles, or 20 per cent of new cars sold in 2023, will be electric. More than 2.3 million electric vehicles (EVs) were sold in Q1, up 25 per cent YoY, with accelerating purchases expected in the second half of the year. This trajectory follows over 10 million global EV sales in 2022 and growth in EVs’ share of total car sales from 4 per cent in 2020 to 14 per cent in 2022.
EVs are experiencing growing adoption because of their key role in decarbonizing road transportation, which is responsible for one-sixth of global emissions, and the many national policies and incentives creating markets for consumers to mitigate climate change while benefitting from quality vehicles comparable to their fossil-fuel counterparts.
By 2030, the IEA forecasts that EVs will cut global oil consumption by 5 million barrels per day. According to Statista Market Insights, this translates to global EV market revenue growing at a 10.07 per cent CAGR from a projected US$561.3 billion in 2023 to US$906.7 billion by 2028, despite high EV costs and lack of charging infrastructure in developing nations remaining obstacles on the path to the United Nations’ net-zero emissions target of 2050.
Why invest in EV stocks?
As more EVs take the road, and used vehicles enter the market to enable mass adoption, the opportunity to profit from electric car companies before the average investor should be top of mind for readers with at least a 10-year time horizon.
Key catalysts for EV proliferation include:
- High fuel prices because of high inflation, with the $3-$5 it costs to fully charge a Tesla Model 3 paling in comparison to the cost of a full tank of gas
- Growing awareness of the environmental harm at the heart of fossil fuel usage
- Widespread political alignment about electricity representing the most sustainable path forward for global industry
These catalysts have created a space for new EV players to innovate and fulfill unmet needs across the transportation sector’s many niches, such as trucking, public transport, charging stations and performance-enhancing technology.
While the consumer vehicle space remains crowded and competitive, with some of the world’s leading automakers like Tesla, Ford and General Motors in the mix, small and micro-cap electric car companies smart enough to build more localized competitive advantages are thriving and creating shareholder value in the shadows of these giants.
Many of these budding operations offer investors early indications of success, coupled with high uncertainty about the staying power of their brands, resulting in attractive entry points for long-term allocations. With the IEA estimating that EVs may capture 18 per cent of total car sales in 2023, there seems to be ample room to capitalize on the electrification revolution before it reaches full speed.
5 emerging electric car companies with tangible evidence for long-term growth
As global car manufacturers soak up the spotlight with their EV initiatives, smaller businesses in the sector are catering to more focused market segments where massive scale doesn’t stand in the way of operational success. Here are five to consider:
- The Lion Electric Company (TSX:LEV), down by 87.08 per cent since inception
- GreenPower Motor Company (TSXV:GPV), down by 88 per cent from its all-time high in 2021
- Exro Technologies (TSX:EXRO), up by 75.18 per cent since inception
- Hypercharge Networks (NEO:HC), up by 1.72 per cent since inception
- Vicinity Motor (TSXV:VMC), down by 11.52 per cent since inception (data as of Sept. 7, 2023)
These businesses stand out because of their specialized expertise, proprietary technology and their ability to take on smaller projects that wouldn’t move the needle for large-cap names. Let’s go into more detail about what makes each of them unique and why their arguably undervalued shares deserve a place in your portfolio.
The Lion Electric Company
The Lion Electric Company is a designer and manufacturer of all-electric school buses, urban trucks and midi/minibuses with approximately 1,400 vehicles on the road. As a leading North American original equipment manufacturer (OEM), Lion Electric generates many of its vehicles’ components in house, including chassis, battery packs, cabins and powertrains.
The company’s Lion5, Lion6 and Lion8 heavy duty urban trucks run on state-of-the-art lithium-ion batteries and offer motor power up to 350 kW and 3,500 Nm torque specifically designed to withstand harsh climates. Their ranges vary between 228 km and 400 km with payload capacities between 12,500 pounds and 40,000 pounds.
The company’s line of electric buses is highlighted by:
- The LionC, the only purpose-built, all-electric Type C school bus manufactured in North America
- The LionM, a midi/minibus built in line with paratransit and public transportation requirements with a range between 120 km-240 km per charge and capacity of up to 31 passengers
- The LionA, a mini school bus designed for kids with special needs with a range of 120 km to 240 km and capacity for 24 passengers
- The LionD, a Type D school bus with a range of 150 km to 250 km per charge and capacity up to 83 passengers
Backed by manufacturing capacity of 20,000 vehicles at its Illinois facility, an additional 2,500 in St. Jerome near Montreal, and 5 GWh of capacity at its battery plant in Mirabel, Quebec, Lion Electric has amassed an impressive client roster in trucks including Amazon, IKEA, DHL, The Brick, The New York Times, Hydro-Quebec, Labatt, Bolt, and Transport Canada, and in buses including STA, First Student, National Express, Transdev, LA USD, ZUM, and the governments of Prince Edward Island and New Brunswick.
In addition, the company acts as a turnkey solution for clients across charging infrastructure, grants, financing, as well as parts and services, offering potential investors a means to diversify risk compared with pure-play automakers.
From a financial perspective, these high-profile deals and the service ecosystem have contributed to the company’s 8.4x revenue growth from US$16.62 million in 2018 to US$139.91 million in 2022, as well as its first profitable year over the past five years with US$17.78 million in net income in 2022.
With an order book of 2,559 EVs totaling US$625 million and 275 charging stations and related infrastructure totaling US$5 million as of Aug. 2, more than US$112 million in revenue so far this year, and more than US$52 million in available liquidity as of June 2023, Lion Electric is on a path to meaningful market share despite its shares’ dismal performance.
GreenPower Motor Company
GreenPower Motor Company is advancing the adoption of EVs through its line of affordable and durable battery-electric buses and trucks. The company’s commercial vehicles are active in delivery, public transit, schools, vanpools, micro-transit, shuttles and more.
GreenPower’s EV Star line boasts more than 400 vehicles on the road and offers up to 7,000 pounds in payload capacity, 836 cubic feet of space, and a range of up to 150 miles on 118 kW, while its BEAST line of school buses can carry up to 90 passengers over the same range.
The company builds its vehicles electric from the ground up, allowing for optimal placement of battery and propulsion systems, which increases overall vehicle strength and enhances battery weight distribution compared with other electric vehicles.
All GreenPower vehicles employ SAE J1772 standard charging with level 2 and DC fast charging options, in addition to wireless charging for the EV Star family.
The micro-cap manufacturer has managed to grow revenue by 6.5x from US$6.08 million in 2019 to US$39.70 million as of March 2023, while consistently reducing quarterly net losses from US$4.35 million in June 2022 to US$2.81 million in June 2023, substantiating management’s ability to responsibly grow market share on the road to establishing the GreenPower brand.
Supported by 23.2 per cent insider ownership, including an 8.4 per cent holding by CEO Fraser Atkinson, and a management team with prior experience at BYD, Thor Trucks, CCW and Mercedes-Benz, the company is structured to deliver on growing demand from commercial customers.
Our next electric car company is Exro Technologies, a tech developer focused on increasing energy efficiency in EVs and energy storage systems through two primary solutions:
- The Coil Driver, an adaptive traction inverter for EV motors that switches between two modes – series mode for high torque at low speeds, and parallel mode for high power at high speeds. This optionality enables a 5-15 per cent increase in highway range and a 40 per cent increase in power at highway speed, resulting in significant cost and weight reductions for electrical powertrain manufacturers.
- The Cell Driver, an integrated energy storage system to manage battery cells, including balancing between charging and discharging, and locating faults without interrupting power. The technology doubles the life of EV batteries from their conventional 8-12 years and can reduce a commercial building’s electricity bill by as much as 41 per cent.
The company also offers comprehensive engineering services, which diversifies its revenue.
The technology’s ability to add meaningful dollars to clients’ bottom lines, coupled with Exro’s recent launch of Coil Driver production in Calgary, and its partnerships with luminaries in mobility and renewables, such as Linamar, Greentech Renewables and a global automaker, make the company one of the most exciting tech providers in the EV space.
That said, a word of caution. Though Exro’s cash exceeds its debt, it remains unprofitable, like most companies on this list, with no financial evidence of this shifting, given a 12x increase in net losses from -C$3.13 million in 2018 to -C$40.02 million in 2022. For this reason, investors should temper their excitement about the company’s clearly value-added technology with expectations for a smooth ramp-up in production, manufacturing cost optimization and global partnerships.
Hypercharge Networks is an electric vehicle charging station company providing fully integrated and agnostic hardware, software and services.
Management is keen to capitalize on an expected 932 per cent growth tailwind in global EV charging stations, as well as addressable market growth from US$18 billion in 2021 to US$120 billion by 2028, with its turnkey solutions for fleet owners and commercial and residential buildings.
As of 2022, Hypercharge had sold 1,491 ports and delivered 500 for revenue of C$1.7 million to partners including Ramada, the City of Toronto, TargetPark and Sheraton Hotels.
The company is pursuing approximately C$13 million in opportunities in 2023, which would elevate sales to more than 2,600 ports. Results for calendar Q2 2023 demonstrate significant growth with:
- New orders for 288 charging ports, bringing total sales to 2,100 since opening for business in June 2021
- The activation of seven strategic partnerships, increasing the total to 44
- A 628 per cent YoY increase in revenue from C$68,835 to C$501,024
Shareholders should be encouraged by Hypercharge’s lack of debt and 10 per cent insider ownership, which offer flexibility and shareholder alignment toward new business ventures on the road to profitability.
Vicinity Motor, est. 2008, is aiming to be the leading North American manufacturer of mid-sized buses for public and enterprise use. Its vehicles include the electric, CNG and clean-diesel Vicinity buses and the VMC 1200 electric truck.
The company’s Vicinity buses are noteworthy for their primary use of commercially available components, which leaves more dollars in client pockets, and costs significantly less than a traditional 40-foot bus, as well as their versatility across use-cases such as paratransit, shuttles and communal routes. The fully electric Vicinity Lightning model stands out for its 300 km range on a single charge, charge time as short as 1.5 hours and generous 34 passenger capacity.
The VMC 1200’s cutting edge lithium-ion battery technology produces up to 150 kWh of power that supports 6,000 pounds in load capacity, a 150-mile range and a top speed of 65 mph. Charge time for this model is as little as 2.5 hours.
Vicinity currently has more than 700 vehicles on the road and an in-house assembly capacity of 7,700 vehicles, which has enabled it to attract and onboard a growing list of blue-chip customers and partners across an order book exceeding US$150 million, including Pioneer (US$100 million deal), B.C. Transit, Calgary Transit, Edmonton Transit, Porter Airlines, ABC Companies and Saskatoon Transit.
These milestones have not translated into conviction-building financial statements, with the company’s revenue fluctuating wildly over the past five years, and its net income in the red over the period except for an anomalous US$700,000 profit in 2018. The market’s uncertainty about Vicinity’s future is an opportunity for investors that believe in its brand and leadership position in the medium-duty category (slide 13) to step in before wider adoption catalyzes share performance.
Honorable mentions: electric car companies worth keeping tabs on
VinFast (NDAQ:VFS) is a Vietnamese manufacturer that has delivered some 19,000 EVs across Vietnam and the U.S. as of June 30. The stock is up by 32.40 per cent since its debut on Aug. 15 and maintains an approximately US$85 billion market cap, which puts it ahead of established automakers like Volkswagen, Ford and General Motors and has earned it the status of meme stock.
EVgo (NDAQ:EVGO) is one of the United States’ largest public networks of DC fast chargers with more than 850 stations powered by renewable energy in more than 60 metropolitan areas. This equates to 140 million Americans living within 10 miles of an EVgo charger. Firmly in its growth phase, with net income losses over US$20 million in four of the past five years, the company is delivering on increased market share with calendar Q2 2023 revenue of US$50.55 million almost exceeding revenue for all of 2022. Shares open the door for a value play sitting at a 62.08 per cent loss since inception.
ChargePoint Holdings (NYSE:CHPT), est. 2007, is an EV charging company that claims that someone plugs into its network of hundreds of thousands of stations every second. The company counts 76 per cent of Fortune 50 members as customers with a base of more than 5,000 across its integrated portfolio of hardware, support and cloud services. In spite of this trajectory – which also includes a more than 4x jump in revenue from US$92.03 million in fiscal 2019 to US$468.09 million in fiscal 2023 – CHPT shares are down by 39.70 per cent since inception. Escalating losses – from US$108.09 million in 2019 to US$345.11 million in 2023 – remain the main obstacle to ChargePoint’s critical mass translating into shareholder returns, but this negative tide should turn as the company’s brand power allows for lower R&D and SG&A expenses.
The risks of investing in small and micro-cap electric car companies
EV investors can earn multiples above their cost basis through a diversified portfolio of compelling companies that are 1) early in their tenures, and 2) trading at out-of-favour prices. It may take only one winner to make an allocation worth it. That said, it’s best practices to have an idea about why your losers lost. To that end, here are three traits shared by the stocks we’ve discussed today:
- Extreme short-term volatility because of not being household names like General Motors or Mitsubishi, whose histories of profitability are nothing short of legendary
- The need for a long-term time horizon of 10 years or more for each company’s unique value proposition to take hold in the marketplace. Most investors in Tesla stock over the past three years are likely flat or in the red, while shareholders going back at least a decade are sitting on approximately 2,100 per cent returns
- The challenge of maintaining solvency as a small company for long enough to see EV industry growth contribute to the viability of its business
Far from the set-it-and-forget-it nature of index funds, emerging electric car companies are active investments that require constant monitoring and tangible evidence that growth is translating into free cash flow to justify their place in your portfolio.
While our five stock picks are increasing market share, owning them will likely result in considerable short-term losses on the road to outsized returns, meaning only the highest-conviction shareholders will be present to collect after growing pains subside.
If that sounds like you, we recommend applying your full due diligence process to our picks before committing to an allocation.
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