KEY POINTS: UNDERVALUED EV STOCKS
- Ford sold over 13,000 electric vehicles in January, up 167% YOY.
- BYD’s sales of electric vehicles rose 221% YOY in January.
- Volkswagen sold 95% more electric vehicles in 2021 than it did in 2020.
Most electric vehicle (EV) stocks trade at extremely high valuations. However, that doesn’t apply to every company on the market. A few EV stocks are still valued at attractive levels, and these three are smart buys for long-term investors.
Ford (NASDAQ:F) stock’s price is significantly lower than some pure-play EV manufacturers. It may not be easy for the world’s largest automobile firm to keep moving forward with its electric vehicle strategy. Moreover, the firm may not generate margins comparable to those pure-play EV companies for some time. That’s because internal combustion engine vehicles will continue to account for a large (albeit declining) proportion of its vehicle mix.
Taking that into account, investors should ask themselves, how low could Ford’s stock trade? Worth noting: the firm expects half of its sales to be electric in a decade.
The numbers look good
Ford’s price-to-earnings ratio is 4, which appears low in comparison to other legacy firms as well as the overall market. However that valuation is primarily due to a one-off profit from its Rivian (NASDAQ:RIVN) investment. Looking ahead, Ford’s forward price-to-earnings ratio is in line with its traditional peers, at 7.5.
Similarly to other traditional automakers, Ford’s share price is less expensive than that of pure-play EV businesses. Even if some discount is required, this one appears to be considerably too big. There is certainly room for the company’s price-to-earnings multiple to rise if it follows through with its EV plans. Ford’s goal in the next couple years is to be the second-largest manufacturer of electric vehicles. Furthermore, in January, it sold 13,169 EVs, up 167% year-over-year. In 2023, it plans to produce 600,000 of these electric vehicles.
While Ford could come up short of its EV goals, that is the case for other automakers as well. As a result, the size of the discount on Ford’s stock compared to pure-play EV companies looks unjustified. Nevertheless, given its growth potential, it remains an undervalued EV stock. Ford stock offers an interesting way to gain exposure to this fast-growing market.
Chinese EV maker BYD (OTH:BYDDY) (OTH:BYDDF) is expanding quickly in its home market. The company’s new energy vehicle sales rose 362% year over year in January, to 93,168 units. 46,386 of those were pure electric vehicles. Sales of BYD pure electric vehicles rose 221% year over year. BYD is already the world’s fourth-largest producer of electric vehicles.
However, BYD trades at a much lower price-to-earnings ratio than other EV companies. This is compared to both established names and emerging contenders.
BYD joined the automotive sector in 2003. Currently, about 95% of its vehicle sales are electric or plug-in hybrids. Hereafter, BYD, with a strong manufacturing expertise and a leading position in the Chinese EV market, appears well-positioned to continue growing. Its electric vehicle operations should increase significantly over the next decade, and its stock price will likely follow. We heartily include it on our list of undervalued EV stocks to buy.
Volkswagen (OTC:VWAGY) is another traditional automaker with an attractive valuation, considering its EV ambitions. Its price-to-earnings ratio of 6.8 is less than that of most pure-play EV companies. Similarly, its price-to-sales ratio of nearly 0.5 is comparable to the valuations of other EV makers.
Volkswagen says it will invest 52 billion euros in future electric models and has set a goal of having half of all its vehicles sold by 2030 be electric. Batteries are a major component of this development strategy. To meet its own battery demands, Volkswagen plans to open six “gigafactories” in Europe. In 2021, the German carmaker sold more than 450,000 electric vehicles, up 95% from 2020.
The world is shifting to electric
In 2021, global electric car sales increased to over 12 million vehicles, accounting for almost 9% of the vehicle market. This proportion is projected to rise in the future, providing significant expansion potential to auto companies that can successfully target consumers with new EV options.
If Volkswagen is able to increase its EV sales while also improving margins, the company’s stock price and value will reflect it. It’s on our list of undervalued EV stocks to buy.