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Electric vehicles (EVs) have swiftly transitioned from being a mere blip on the automotive radar to pioneers of the transportation revolution. It's perhaps one of the most lucrative longer-term investment spaces, as well as one of the highest risk - offering tremendous potential upside for investors willing to stomach the potential downside.
Spurred by government incentives and enticing price reductions from top manufacturers, global electric vehicle (EV) sales soared by a whopping 38% year-over-year, clocking in at 1.26 million deliveries in June alone. This impressive number translates to 19% of the total vehicle sales in the month and a 15% bump year-to-date.
So, it's an opportune time for investors to pounce on a few of the top EV stocks with promising trajectories ahead. Let's look at two of the top stocks in the EV industry that are significantly off their recent highs, but look well-positioned for longer-term dominance.
Tesla
Tesla (TSLA) stock has cooled off and then some in the past month, shedding more than 20%. That's a sharp contrast to the gains it collected earlier this year. During the first six months of 2023, TSLA more than doubled in value, gaining 112%.
Since then, concerns surrounding shrinking margins and delays in product launches have pressured TSLA off its highs. Nevertheless, history suggests it is tough to bet against this EV juggernaut, particularly as the world transitions towards sustainable energy at a more rapid pace.
Earnings Surprise and Analyst Ratings
Tesla reported second-quarter earnings of 78 cents per share, effortlessly surpassing the average estimate of 69 cents. Using its own metric, omitting stock-based compensation, Tesla reported a stellar net income of $3.15 billion, or 91 cents a share - which blew past analyst estimates of 80 cents per share.
On top of that, Tesla delivered a 47% surge in total sales to a whopping $24.9 billion, highlighted by an 83% increase in deliveries compared to the same quarter last year. That follows multiple price cuts across its electric vehicle lineup.
Looking ahead, analysts expect a slowdown in earnings growth for the current quarter and the next, for an overall fiscal year earnings decline of 18.5%.
Wall Street analysts have differing opinions on where TSLA stock is headed next. Seven analysts rate it a “Strong Buy,” one calls it a “Moderate Buy,” and 14 recommend “Hold.” On the flip side, three more analysts rate the stock a “Strong Sell.”
However, with its relatively encouraging second-quarter showing, along with a commendable leap in free cash flow from the first quarter's $441,000 to a staggering $1,446,000 in the second, betting against Tesla seems imprudent.
Moreover, CEO Elon Musk suggested in the May shareholders' meeting that Tesla's innovation pipeline is growing beyond numbers. With autonomous driving, artificial intelligence, and other catalysts steering the long-term bull case, it's tough not to scoop up TSLA stock on this dip.
Ford
Ford (F), a quintessential Detroit automotive titan, has risen remarkably up the ranks to the number two spot behind Tesla in the EV sales race. While many still associate Ford with traditional combustion engines, its emergence in the EV sphere is likely to pay dividends for investors.
In terms of price action, Ford has pulled back alongside the broader stock market in August. The stock is now up just 2.7% on a year-to-date basis, after notching a 30% gain during the first half of the year.
Nevertheless, F's valuation now looks attractive - and worthy of consideration for investors before a likely breakout. I'm willing to maintain my bullish stance on Ford Motor Company at current levels, anticipating that most of the damage has already been reflected in the share price.
Ford Motor’s Earnings
Ford Motor Company has been on quite a run in 2023, delivering earnings and revenue beats in the first two quarters. The auto giant reported 72 cents per share in earnings for the second quarter, significantly outpacing the consensus estimate of 51 cents.
This positive earnings surprise of 41.2% builds on an already impressive first-quarter surprise of 57.5%, where earnings clocked in at 63 cents per share against the estimated 40 cents per share. In other words, Ford is not just meeting estimates, but hitting the earnings ball out of the park, judging from its recent performances.
Ford Motor’s Free Cash Flow and Sales Performance
Now, let’s shift gears to the other key metrics. The company's free cash flow has accelerated at a stellar pace, up sequentially to a whopping $4.1 million during the second quarter, from $1.02 million in the first quarter. Ford also reported $12 billion in sales, a 12% bump from the prior-year period.
However, predictions for the remainder of 2023 hint at a potential slowdown on softer EV sales. Additionally, the firm expects a $4.5 billion loss in its EV division this year, up from its prior $3 billion estimate.
That said, considering the 118.7% year-over-year jump in its all-electric F-150 Lightning sales during the second quarter, coupled with Ford's own lofty EV production targets, it's safe to assume there's still encouraging long-term growth potential left in the space.
Takeaway
In the dynamic landscape of EV stocks, both Tesla and Ford Motor Company have exhibited robust performances, backed by impressive earnings and promising trajectories. However, in the past month, both stocks have pulled back, offering attractive entry points for long-term investors looking to profit from the lucrative EV sector. Once the current macroeconomic headwinds dissipate, I expect both businesses to deliver outsized gains in their future quarterly reports, and for their shareholders.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
