Not every major electric vehicle manufacturer is trading at an ambitious valuation.
Electric vehicle (EV) stocks broadly have been trading at sky-high valuations lately. But that doesn’t apply to every company operating in that market. A few are still valued at extremely attractive levels, and among that group, these three look particularly smart buys for long-term investors.
Ford
Ford (F) stock trades at a significant discount compared to some pure-play EV companies — and it may continue to for a while. The giant automaker’s ongoing transition to electric vehicles may not be easy. Further, the company may not generate margins comparable to those pure-play EV companies, as internal combustion engine vehicles will continue to account for a significant (albeit falling) share of its vehicle mix for some time.
Even in light of those points, though, the question investors should be asking themselves is: How much of a discount should Ford’s stock trade at? It’s important to note that in a decade, the company expects roughly half of its sales to be electric.
Ford’s stock is trading at a price-to-earnings ratio of 4, which looks low compared to other legacy automakers as well as to the broader market. That lower valuation, though, is largely due to a one-off gain on its investment in Rivian. Ford’s forward price-to-earnings ratio of 7.5 is in line with its traditional peers.
However, like other traditional automakers, Ford’s stock is trading at a significantly cheaper valuation than pure-play EV companies. Even if some degree of discount is warranted, this one looks a bit too big, and there is surely some scope for Ford’s price-to-earnings multiple to grow if it succeeds with its EV-related plans. Ford aims to be the second-largest manufacturer of electric vehicles in a couple of years. It sold 13,169 EVs in January, up 167% year over year. In 2023, it intends to produce 600,000 of them.
Might Ford come up short of its EV goals? Certainly — but so might other automakers. For that reason, the size of the discount on Ford’s stock compared to pure-play EV companies looks unreasonable. In short, Ford stock offers an attractive way to gain exposure to this fast-growing market.
BYD
Chinese EV maker BYD ( BYDDY -3.10% ) ( BYDD.F -3.94% ) is growing rapidly in its home market. In January, the company’s new energy vehicle sales rose 362% year over year to 93,168 units. Of these, 46,386 were pure electric vehicles. Sales of its pure electric vehicles rose 221% year over year. BYD is already the world’s fourth-most-prolific producer of electric vehicles.
Yet BYD trades at a much lower price-to-sales ratio than other EV companies, both top names and emerging contenders.
BYD entered the automotive business in 2003. Right now, around 95% of its vehicle sales are electric or plug-in hybrids. With rich manufacturing expertise and a leading position in the Chinese EV market, BYD looks well-placed for continued growth. In the next decade, its EV operations should grow significantly, and its stock price should follow.
Volkswagen
Volkswagen ( VWAGY -2.52% ) is another traditional automaker with a valuation that looks attractive considering the scope of its EV ambitions. Its price-to-earnings ratio of 6.8 is lower than that of most pure-play EV companies. Likewise, its price-to-sales ratio of nearly 0.5 compares favorably with the valuations of other EV makers.
Volkswagen intends to invest 52 billion euros in its electrification efforts, and has set itself the goal of having electric models account for half of all the vehicles it sells by 2030. One key focus of this investment plan is batteries: Volkswagen plans to establish six “gigafactories” in Europe to meet its own battery needs. In 2021, the German automaker sold more than 450,000 electric vehicles, up 95% over 2020.
Global electric car sales more than doubled to 6.6 million units in 2021, accounting for nearly 9% of the car market. This share is on course to rise in the coming years, offering immense growth potential to the automakers that can best appeal to consumers with their new EV offerings.
If Volkswagen succeeds in driving its EV sales higher while also improving margins, its stock price and valuation will surely come to reflect that.
