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Friday, August 26, 2022

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It has not been an easy ride for electric vehicles or EV makers this year. Component shortages, persistent supply chain issues, production troubles due to the resurgence of COVID-19 in China, and rising material costs have been a major drag on EV stocks. However, the demand for EVs continues to be strong and is expected to rise further as more and more countries are trying to address environmental concerns. Here, we will discuss the prospects of three EV stocks – Li Auto (NASDAQ:LI), Tesla (NASDAQ:TSLA), and Rivian Automotive (NASDAQ:RIVN) and use the TipRanks Stock Comparison tool, to pick the one that could generate higher returns. 

Li Auto (NASDAQ:LI)

Despite the significant impact of COVID-related restrictions, Chinese EV maker Li Auto delivered 28,687 units of its flagship vehicle, Li ONE, in the second quarter of 2022, up 63.2% year-over-year. However, deliveries and, as a result, Q2 revenue fell compared to the first quarter. Furthermore, the company’s adjusted loss widened significantly from the prior-year quarter.

Speaking about Li Auto’s second model, the Li L9 SUV, the company stated that it has received a positive response since its launch on June 21. However, Li Auto issued weak guidance for the third quarter, with deliveries expected in the range of 27,000 to 29,000 vehicles.    

Is Li Auto Stock a Buy?

US Tiger Securities analyst Bo Pei feels that Li Auto’s soft Q3 outlook mainly reflects “the model transition gap (from Li ONE to L9 & L8), actually demonstrating the strong customer interest in the new models.” The analyst expects a solid rebound in Q4 deliveries and revenue, based on the launch of the L8 and L9 vehicle models. Pei has a Buy rating on LI stock with a price target of $40.

Meanwhile, CLSA analyst Aaron Li recently initiated coverage on Li Auto with a Buy rating and a price target of $49. Following the success of Li ONE in China’s family SUV market, the analyst expects the recently launched L9 to drive demand based on its “intelligent design and attractive price.”

The analyst expects Li Auto to deliver 160,000 to 450,000 vehicles annually during 2022-2024, with revenue growing at an estimated compound annual growth rate of 78% during this period.

Other analysts are also optimistic about Li Auto, with the stock scoring a Strong Buy consensus rating based on 9 unanimous Buys. At $68.89, the average Li Auto stock price prediction implies 121.73% upside potential.  

Tesla (NASDAQ:TSLA)

Tesla smashed analysts’ Q2 earnings expectations, even as revenue fell short of estimates and automotive margins declined year-over-year. Q2 deliveries increased 26.5% to 254,695 vehicles compared to the prior-year quarter. However, deliveries declined when compared to the first quarter due to the prolonged shutdown of the company’s Shanghai factory earlier in the quarter.

Nonetheless, Tesla is optimistic about the road ahead. During the Q2 conference call, CEO Elon Musk highlighted that the company hit record production in both its Fremont and Shanghai factories in June. Musk believes that Tesla has the ability to deliver a “record-breaking second half of the year.”

What are the Expectations for Tesla Stock?

Following a recent visit to Tesla’s Fremont Factory, Canaccord analyst George Gianarikas increased his price target for TSLA stock from $815 to $881 and reiterated a Buy rating. Gianarikas stated, “Tesla’s manufacturing proficiency sets it apart from its tech peers and from other auto OEMs, who are years behind in terms of working out idiosyncrasies in building EVs versus ICE [Internal Combustion Engine] while managing a new supply chain reality.”

Despite the possible impact of macro challenges and recent price hikes on order rates, Gianarikas expects the company’s “EV momentum and competitive lead” to sustain for some time. The analyst believes that “Tesla remains the sustainability behemoth” given its solar and energy storage solutions, as well as other upcoming offerings.

Note that Gianarikas’s price target revision was made before Tesla’s stock split (Gianarikas’s price target is around $293.64 following the stock split). Tesla’s 3:1 stock split, which became effective after the close of trading on August 24, makes the EV stock more affordable for retail investors.

All in all, the Street has a Moderate Buy consensus rating on Tesla stock based on 19 Buys, five Holds, and six Sells. The average TSLA price target of $314.58 implies 6.25% upside potential.

Rivian (NASDAQ:RIVN)

U.S.-based EV maker Rivian manufactures the R1T pickup trucks and the R1S SUVs. The company also manufactures EDVs or Electric Delivery Vans, currently for Amazon (AMZN), which is also its key shareholder. 

Despite production and supply chain woes, strong demand helped Rivian generate better-than-anticipated revenue of $364 million in the second quarter (no revenue was generated in the prior-year quarter). The company delivered 4,467 vehicles in Q2.

However, Rivian’s losses widened in the second quarter due to higher operating expenses. Moreover, the company expects a higher adjusted EBITDA loss of $5.45 billion in 2022, compared to the prior outlook of a loss of $4.75 billion. Supply chain challenges, investments in the company’s Normal Factory, and raw material inflation are expected to drive higher losses.

On the positive side, Rivian reaffirmed its full-year production guidance of 25,000 units. Moreover, demand for Rivian’s EVs is robust, as indicated by the preorder backlog of nearly 98,000 vehicles at the end of Q2.

Is Rivian Stock Expected to Rise?

Mizuho Securities analyst Vijay Rakesh noted that Rivian’s Q2 was marked by continued solid demand, partially offset by supply constraints. The analyst stated, “We believe RIVN may have seen the worst of chip-supply tightness in the JunQ, with better semi supply ahead as production ramps (adding a 2nd shift).”

Overall, seven Buys, three Holds, and one Sell amount to a Moderate Buy consensus rating on Rivian stock. The average RIVN price target of $48.55 implies 47.57% upside potential from current levels.

Conclusion

The long-term growth story for EV makers looks attractive. Several countries across the world are encouraging the adoption of EVs by offering tax credits and other incentives. The recently passed Inflation Reduction Act also allows tax credits for electric trucks and SUVs costing no more than $80,000 and sedans priced no more than $55,000.

Currently, analysts are highly bullish on Li Auto and estimate a higher upside potential in the stock compared to Tesla and Rivian.

Disclosure

California on Thursday moved to require all new vehicles sold in the state by 2035 to be either electric or plug-in electric hybrids, a landmark move that could speed the end of gasoline-powered vehicles.