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Forget Tesla (NASDAQ: TSLA): Here's a Better Strategy for EV Investors

Written By Jason Stutman

Posted October 3, 2020

As far as technology investors are concerned, the biggest thing happening in the stock market this year has without a doubt been the explosion in interest in electric vehicles.

Tesla, Inc. (NASDAQ: TSLA) is obviously the standout story. The company has managed to eclipse the valuation of every other automobile company in the world, despite accounting for a small fraction of global car sales. As I write, the company is valued at $402 billion, more than Toyota (NYSE: TM), General Motors (NYSE: GM), and Ford (NYSE: F) combined.

The fervor around electric vehicles, though, has not been limited to Tesla. We have seen wild rallies in emerging electric vehicle pure plays including Nikola Corp (NASDAQ: NKLA), Workhorse Group (NASDAQ: WKHS), and NIO Inc. (NYSE: NIO). It seems that investors are willing to speculate on virtually any automaker committed to electrification and, for the most part, those investors have made out quite well this year.

As we’ve seen with Nikola Corp, though, not all-electric vehicle makers are made equal, nor are they immune to precipitous drops in valuation or spikes in volatility. Accusations of fraud against emerging, unproven companies can be particularly devastating, as can ongoing legal disputes. Nikola investors unfortunate enough to purchase shares of Nikola back in June have watched the stock decline as much as 75%.

Even Tesla investors have recently landed on shaky ground. After peaking at ~$500 a share shortly after its much-anticipated stock split, the company had lost a third of its valuation in just over a week. 

Much of what we’re witnessing in the electric vehicle space right now is the inability of the market to efficiently value these emerging and competing companies. We simply do not know who will come out on top, with each company taking different approaches to electrification. 

Tesla, for instance, just revealed its battery strategy for the next three years, effectively telling the market it is going to stick to conventional lithium-ion batteries. Meanwhile, competing players like Volkswagen are embracing solid-state batteries which threaten to make even Tesla obsolete. That is, of course, if they can figure out how to effectively scale production.

With all this uncertainty, the only thing we know for sure is that we don’t know who will be on top five or 10 years from now. That being the case, investors would be wise to diversify across these emerging electric automakers. Simply going all in Tesla, Nikola, or any other company carries too much risk.

That all being said, there is also a way to avoid betting on the rat race between all these competing EV companies: stick to the picks and shovels that are the foundation of electrification. 

What Do All EV Makers Have in Common?

When you look “under the hood” of a modern EV, you won’t find much more than trunk space, but metaphorically speaking, you will find commonalities between all modern EVs that are incredibly useful to consider as an investor. We’re talking about critical resources and technologies that will allow EVs to thrive in the first place.

Take lithium for instance. The metal is going to be a critical component of batteries whether or not we advance to solid-state technology, so metals and mining companies with exposure to lithium are fantastic candidates for investors.

Piedmont Lithium (NASDAQ: PLL) stands out as one timely example. The North Carolina lithium miner climbed from $6 to as high as $37 in September after signing a binding supply agreement with Tesla Inc. These are the kinds of companies you won’t hear about on CNBC until they make that kind of deal but the ones you should be paying attention to regardless.

If you’re looking for just one lithium company above all others, Albemarle Corporation (NYSE: Albemarle) is the obvious choice, being the leading provider of lithium for electric vehicle batteries on the market. That said, it isn’t the only pick-and-shovel play you’ll want to consider for EVs.

Lithium is a critical resource for EVs as much as charging infrastructure is a critical technology. Arguably, it is the single most important piece of the puzzle. 

After all, roughly half of the U.S. population does not have ready access to a parking pad, let alone a home charger. Without charging infrastructure, EVs are a difficult sell to a massive portion of the market.

Even where EV stations are available, they are often overcrowded because: (1) charging takes a long time, and (2) there are not enough chargers per EV owner. Simply put, no one wants to wait 15 minutes for a charger then another 40 minutes or so to charge.

This being the reality of EVs, charging infrastructure and capability is the biggest bottleneck between where we are today and mass consumer adoption. If you’re not thinking about this niche when investing in the EV trend, you’re missing out on a major opportunity.

Aerovironment (NASDAQ: AVAV) has long been the only publicly traded company in this regard, but we’re also about to see ChargePoint IPO in the coming months, and I’m all in on that stock. If you want more details on that opportunity in the coming weeks, I recommend checking out the investment newsletter IPO Authority

Monica Savaglia does a fantastic job of running that service, and it is my go-to place for monitoring new public entries to the market. I’m sure she’ll be covering ChargePoint in the near future. You can get a risk-free trial through this link here.

Until next time,

  JS Sig

Jason Stutman

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