Electric vehicles (EVs) have been dominating headlines due to the convergence of social, cultural, and political forces driving a shift from conventional combustion-powered cars to zero-emission vehicles. This shift has sparked a surge in government programs and spending designed to quickly expand the infrastructure needed to support a growing fleet of EVs. In return, we are also seeing enormous growth in EV manufacturers.
The infrastructure support is substantial. Cantor senior analyst Andres Sheppard notes that “all states (plus DC & Puerto Rico) now have access to federal funding to help build EV charging stations alongside ~75,000 miles of highway corridors in the US.”
“Furthermore,” he adds, “President Biden has publicly committed to building out a national network of 500,000 EV chargers by 2030.”
This is giving support to the EV industry, and even though the U.S. is “significantly lagging” behind Europe and China with regards to EV adoption, Sheppard is predicting a “rapid acceleration” in EV sales. Bloomberg forecasts more than 1.6 million and over 2.1 million EVs will be sold in the U.S. in 2023 and 2024, respectively.
The Cantor analyst follows his summary of the EV market with a closer look at the manufacturers involved. He’s particularly interested in the smaller, lesser-known EV companies that haven’t got the recognition or clout or market share of Tesla – but that have strong prospects going forward.
We’ve opened up the TipRanks database to find the details on two of his stock picks. Both are currently changing hands for under $10, and according to the analyst, they also offer over 70% upside potential. Let’s take a closer look.
Polestar (PSNY)
We’ll start with the Swedish EV manufacturer Polestar. Polestar went public through a SPAC deal last June and is now traded on the NASDAQ exchange. The company specializes in high-end performance EVs, and has two primary models in production, available on the global market, as well as three additional models in various stages of pre-production and scheduled for introduction over the next three years.
The company’s two production models are the Polestar 2 and Polestar 3, launched in 2019 and 2022. The first is described as a ‘performance fastback,’ while the second is an SUV model. Both are fully electric, plug-in vehicles, designed to appeal to drivers seeking a zero-emission car without sacrificing a high-end driving experience.
The company delivered 51,000 vehicles last year, a record volume that represented a near-80% year-over-year increase, and has continued to post high delivery numbers in the first quarter of this year. Q1 deliveries came to a record 12,076, up 26% y/y.
That said, while revenue climbed by 20.7% from the same period a year ago to $546.02 million, the figure fell shy of the consensus estimate by $62.68 million. On the other hand, EPS of -$0.01 beat the -$0.05 anticipated by the analysts. Looking ahead, the company now anticipates selling between 60,000 to 70,000 vehicles in 2023.
Turning to Cantor’s Andres Sheppard, who sees the company’s connections as differentiating it from the pack.
“Polestar holds an advantage over other EV OEMs by being able to leverage Volvo and Geely’s (Polestar is owned by both) existing manufacturing facilities in order to scale production more rapidly, while also being able to utilize Volvo and Geely’s manufacturing expertise to smooth out inefficiencies and bottlenecks,” the analyst explained. “This allows the company to avoid capex and manufacturing costs that other competitors that build their own factories would have to incur, in our view. We believe this could help keep the company’s fixed costs low over the long term, which could benefit its gross margins (which are already positive).”
Given all of the above, Sheppard has high hopes. Along with an Overweight (i.e. Buy) rating, he keeps a $6 price target on the stock. This target puts the upside potential at ~83%. (To watch Sheppard’s track record, click here)
Overall, the Street has given Polestar a Moderate Buy consensus rating, based on an even split among the recent analyst reviews – 2 Buys and 2 Holds. The shares are priced at $3.31 and the $6.25 average price target suggests a 12-month upside potential of 89%. (See Polestar stock forecast)
EVgo, Inc. (EVGO)
We’ll shift gears from an EV maker and look at EV charging – after all, without a viable charging network, the EVs won’t go very far. EVgo operates one of the premier networks of electric vehicle charging stations in the US, with a nationwide footprint: active in 30 states, in more than 60 major metropolitan areas, and featuring more than 900 fast charging stations. The company estimates that 140 million Americans have an EVgo charging station less than 10 miles away.
EV charging isn’t free, and EVgo sells memberships in its network by subscription, allowing paid customers access to the company’s charging stations. EVgo offers a wide range of customer plans and pricing, to fit every customer’s vehicle or budget. It’s a business model that has brought EVgo more than 3.4 million users and over 614,000 paid customer accounts. The firm is committed to a zero-emission future, and its network is powered by electricity from 100% renewable sources.
EVgo is working to expand its network, and to that end the company last year announced its eXtend program, a partnership with General Motors and Pilot Company to deploy some 2,000 EVgo charging stalls at 500 Pilot Flying J travel centers – fueling stations and rest stops – across 40 US states. The program marks a major expansion of EVgo’s network, and is a natural outgrowth of EVgo’s already existing partnership with GM, providing power for the company’s electric fleet vehicles. The eXtend project is already seeing success, and revenues from it grew by $10.2 million in 1Q23.
Overall, EVgo’s Q1 revenue, at $25.3 million, was up 229% compared to 1Q22. However, it’s worth noting that although the company experienced substantial year-over-year growth, its Q1 revenue fell short of the Wall Street forecast by $1.45 million. On the earnings front, EVgo reported a net loss of 18 cents per share in GAAP EPS, surpassing expectations by 3 cents. In non-GAAP measures, the company recorded a gain of 9 cents per share, exceeding estimates by an impressive 22 cents.
Checking in again with Cantor’s Andres Sheppard, we find the analyst is upbeat about EVgo’s ability to continue its rapid growth.
“We continue to believe that the EVGO ‘eXtend’ program will translate into additional meaningful revenue this year (represented ~61% of total revenue in 4Q22), and more importantly, will allow the company to generate recurring revenue from its operational fees as the GM/Pilot Flying J program begins to ramp up. Separately, while the deployment of NEVI funds has been slower than anticipated, we expect NEVI funding to play a more integral role in 2023, and we expect first deployments in 1H24. Even though the impact on specific project timelines remains uncertain and is dependent on domestic capacity, we believe EVGO is well positioned to capitalize on these funding opportunities and to capitalize on the rapid electrification of vehicles in the US,” Sheppard opined.
Overall, Sheppard rates EVGO an Overweight (i.e. Buy), and he sets a $10 price target to indicate his confidence in a one-year gain of 72%.
That figure is no anomaly; the Street’s average target stands at $9.75, which implies ~68% upside potential from the current trading price of $5.80. With a ratings breakdown of 3 Buys, and 1 Hold and Sell, each, the analyst consensus rates the stock a Moderate Buy. (See EVGO stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Source: https://finance.yahoo.com/news/2-buy-rated-ev-stocks-220712102.html