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The electric vehicle sector has started off 2023 with some fits and starts amid a rewiring of priorities in the market. Morgan Stanley Adam Jonas warned dramatically earlier in the week that as electric vehicles moved from a state of acute undersupply to potential oversupply, investors must discount rising risk of negative earnings revisions for FY23. That dynamic hits an industry with high relative valuations and costs still high (debt, supply chain, commodities).
Over the last week, Tesla (NASDAQ:TSLA) cut prices in China on the Model Y and Model 3 for the second time in less than three months and Rivian Automotive (RIVN) issued a deliveries report that missed expectations. Meanwhile, Chinese automaker stocks Li Auto (LI), XPeng (XPEV), and Nio (NIO) all spun lower as concerns over profitability shot right past optimism over growth and the pullback of zero-tolerance COVID policies in China. The EV sector is also subject to the same macroeconomic headwinds as the broad automobile industry, highlighted dramatically late in December when CarMax (KMX) blamed soft numbers on inflationary pressures that impacted vehicle affordability, higher interest rates, and consumer confidence.
Looking ahead, Morgan Stanley thinks 2023 could be a reset year for the EV market where the last two years of demand exceeding supply will be substantially inverted to supply exceeding demand. “Within this environment, we believe players that are self-funded (non-reliant on external capital funding) with demonstrated scale and cost leadership throughout the value chain (from manufacturing to up-stream material supply) can be relative winners,” noted Jonas. By that rationale, the firm likes Tesla (TSLA), FREYR Battery (FREY), and Rivian Automotive (RIVN) over stocks like Fisker (FSR), Lucid Group (LCID), Li-Cycle Holdings (LICY) and QuantumScape (QS) that may suffer even more during an EV recession.
While momentum, profitability, and value grades are low across the electric vehicle sector, there are a few stocks that stand out on a Seeking Alpha Quant Rating basis. Kandi Technologies (KNDI), XPEL (XPEL), and Canoo (GOEV) are the sleeper picks by taking emotion out of the equation and looking at quant scores. See Seeking Alpha Quant Ratings across all automobile manufacturers or auto suppliers.
Sector watch: Ram unveils electric pickup truck concept at CES.
Add your own EV stock picks for investors to snap up for the long term or avoid in the comments stream.
