Electric car stocks to buy for share price appreciation currently do not include any of the start-ups that have chased Tesla, Inc. (NYSE:TSLA) into competition only for the would-be rivals to falter in their pursuit.
Plus, the company’s Chairman Robyn Denholm, who succeeded its founder and CEO Elon Musk in that role last December after serving as an independent director on the company’s board since 2014, provided an update on Oct. 25 at the annual Baron Investment Conference in New York before thousands of the mutual fund firm’s clients. Ron Baron, chief executive officer and chief investment officer at Baron Funds, is an avowed fan of Tesla and its visionary leader Elon Musk.
Key points offered by Denholm included Tesla rapidly developing new vehicles, becoming an unquestioned world leader in battery production and cutting the price of a battery from more than $100,000 per car 10-15 years ago to less than $10,000 now. Those new vehicles included a Tesla Semi tractor-trailer for long-haul transportation, a pickup truck and a second-generation Roadster, which the company expects to start selling next year as the “quickest” car in the world with record-setting acceleration, range and performance.
Is Tesla One of the Electric Car Stocks to Buy?
Tesla turned in its second consecutive profitable third quarter to show staying power, while its rival start-up electric car companies hit the proverbial skids. In its recently closed third quarter, Tesla’s earnings per share of $1.86 fell from $2.90 in the prior year but finished well above the 46-cent loss predicted by a consensus of Wall Street analysts.
The company’s third-quarter revenue of $6.3 billion almost matched analysts’ $6.4 billion estimate. The company’s shares jumped 9.49 percent on Oct 24 and 17.67 percent on Oct. 25 after posting a surprising profit after the closing bell on Oct. 23, when Tesla also announced it was well ahead of schedule in readying its new factory in Shanghai, China.
Tesla’s share price soared to reach its high mark in 2019 before dipping after analysts noticed that part of the company’s improved results stemmed from warranty adjustments. In fact, Tesla booked almost $50 million in its latest third quarter due to a change in how it accounts for warranty costs. Overall, Tesla’s shares show scant growth overall since the start of the year.
Chart courtesy of www.stockcharts.com
Tesla Seeks to Become One of the Electric Car Stocks to Buy
Bob Carlson, who heads the Retirement Watch advisory service, cautioned that Tesla has a history of reporting a quarter of positive surprises only to be unable to sustain the progress. That tendency is likely to be the case again, he added.
“The third-quarter earnings report had an opaque nonrecurring items line that went unexplained,” Carlson said. It remains to be seen how much one-time events fully helped the company’s third-quarter earnings, he continued.
Investors should focus on 12-month results, Carlson said. Tesla’s sales are down 8 percent during the past 12 months for the first time in seven years, he added.
Further, Tesla’s operating profit dropped 37 percent from a year ago, Carlson said. The company’s gross profit margin is down 3 percent from 12 months ago.
“None of those fundamentals make Tesla look like the hyper-growth technology company that management touts,” Carlson said.
Consider Risks When Eyeing Electric Car Stocks to Buy
Hilary Kramer, whose 2-Day Trader service has notched 18 out of 21 profitable trades with an average return of 11.99 percent and a hold time of less than a day since its launch, advised that there are reasons to remain cautious about Tesla. Reduced selling and administrative expenses also aided the company’s return to profitability, but such an occurrence will not be ongoing for a growth company, she added.
With operating income of $261 million barely covering interest expense of $185 million in the third quarter, Tesla exhibits “financial stress,” Kramer said. Tesla picked up some “low hanging fruit,” but it still has far to go to be on a solid track to consistent profitability.
“Electric car stocks are in trouble because Elon Musk has already triggered what amounts to a global lithium arms race,” said Kramer, who leads the GameChangers advisory service, which has booked 21 profitable trades among its last 25 transactions. “Gigafactories are going up all over the world, removing what was once the capacity constraint that was supposedly keeping millions of battery vehicles off the road. For consumers, it could easily become a utopian situation.”
Battery Market Could Affect Electric Car Stocks to Buy
For manufacturers such as Tesla that have invested billions of dollars to make the batteries, profitability may be elusive, Kramer said.
“When you’re the market leader in a deteriorating market, you have the most to lose,” said Kramer, who leads the Turbo Trader, High Octane Trader and Inner Circle advisory services. “You just won’t be the first to feel the pain.”
If Musk drowns all his competitors in lithium batteries and wrecks his own profit margins to maintain his share of the battery market, it would be “time to buy Tesla,” Kramer said. Until then, investors may be wise to avoid the shares unless buying them for the long term, she added.
‘A lot can go wrong in the meantime,” Kramer said. “Demand for the Model 3 doesn’t seem to be expanding at anything like the exponential rate we were promised. Overall, revenue isn’t expanding at all as subsidies expire. While Tesla might well be the last Western electric car maker standing, the stock may well be broken.”
General Motors May Be Among Electric Car Stocks to Buy
General Motors (NYSE:GM), which finalized a four-year contract on Oct. 25 with employees represented by the United Auto Workers at 55 of the company’s work sites to end a strike, has achieved $2.4 billion in transformation cost savings since 2018 and is on track to reach its 2019 target. The company’s decision to invest in its Detroit-Hamtramck plant to build an all-electric pickup truck was not part of the original transformation plan and led GM to adjust its year-end 2020 cost savings target to $4.0-$4.5 billion.
Investors responded to GM’s results by boosting the price of its shares the day after the company also announced its third-quarter earnings. GM also significantly improved its cash position by the end of the third quarter, reporting adjusted automotive free cash flow of $3.8 billion, up from the same quarter last year mainly due to the timing of working capital flows, reduced capital expenditures and its joint ventures to build cars in China. The auto manufacturer’s liquidity totaled $37.2 billion, jumping $3.4 billion from year-end 2018 and $3.2 billion compared to second-quarter 2019.
GM also showed its capabilities as an established automaker by readying its mass-market Chevrolet Bolt for sale and partnering with Honda to develop a self-driving electric vehicle. The Detroit-based company caught major flak from President Trump when it announced plans last December to cut 14,000 jobs. Investors seem to be liking its direction, based on its rising share price.
Chart courtesy of www.stockcharts.com
Porsche, Ford and Others Advance Their Electric Vehicles
Porsche is making inroads by introducing its luxury Taycan electric car, which is designed to offer high-performance capabilities. Ford (NYSE:F) is teaming up with Volkswagen to use the latter company’s platform to offer electric vehicles in Europe.
Chart courtesy of www.stockcharts.com
Bankruptcies Complicate Which Electric Car Stocks to Buy
Jia Yueting, an entrepreneur who amassed billions of dollars in debt to build a business empire in China, filed for bankruptcy in the United States and agreed to turn over his electric vehicle startup venture to creditors. In a proposed debt-restructuring plan filed in federal court in Wilmington, Delaware, Jia opted to use his ownership stake in Los Angeles-based Faraday Future Inc. to set up a creditor trust to repay his debts.
Faraday Future, a global shared intelligent mobility company, announced its latest equity financing in the form of a planned initial public offering (IPO) within the next 12-15 months. The company announced its projected funding needs for its next stage have been significantly reduced to $850 million from an original estimate of $2 billion.
Since the start of the decade, a partial list of electronic vehicle failures includes Bright Automotive, AMP, Aptera, Coda, Detroit Electric, Fisker Automotive and LeEco. Some of the companies were woefully underfunded, while others produced or raised plenty of cash. In fact, Fisker raised more than $2 billion in cash.
Vacuum maker Dyson halted its electric vehicle program, after its founder James Dyson advised he could “no longer” see a way to attain commercial viability.
Federal Subsidy Raises Questions about Electric Car Stocks to Buy
A critic of the federal government subsidy of electric car sales is Dr. Mark Skousen, who heads the Forecasts & Strategies advisory service. He asked Tesla’s Chairman Denholm to respond to “criticisms of Tesla” that taxpayers pay billions of dollars to help wealthy Americans buy expensive sports cars.
“Now that Tesla is profitable, would you favor discontinuing this tax break for the wealthy?” Skousen asked to scattered applause from some of the attendees at the Baron Investment Conference.
Denholm responded that Tesla doesn’t receive the subsidy, only car buyers do. Plus, she noted that every nation offers a variety of subsidies or tax credits, but she stopped short of answering the query directly.
Ron Baron commented that the $7,500 tax credit per vehicle will be phased out in December.
Investors must weigh economic uncertainty, international disputes, Europe’s negative interest rates, rising U.S. government debt, China’s refusal to halt its unfair trade practices and U.S. House Democrats seeking to impeach President Trump without Republican input. Electric vehicle stocks to buy appear limited and even Tesla still must prove it has the financing and operational capabilities to stave off established automakers such as GM and Ford that are drafting off early gains achieved by Musk and his colleagues.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. Follow Paul on Twitter @PaulDykewicz.