In the world of EV stocks, there are two types of investors. First, there are the investors who believe that Tesla (NASDAQ:TSLA) is the crème de la crème of all companies, and that TSLA stock is the only one that’s needed in this space. On the other hand, there are other investors who think that Tesla is only a car company destined to lose its edge due to competition heating up in the EV space.
In my opinion, a middle-ground approach makes the most sense. Among EV companies, Tesla has the most robust financials in the U.S., and its products remain in high demand. It doesn’t necessarily have the most attractive valuation, but its long-term growth prospects are substantial. Buying TSLA stock as well as the other two well-established EV stocks on this list will provide your portfolio stability and upside potential.
Meanwhile, there are other smaller EV companies, such as Rivian (NASDAQ:RIVN), Nio (NYSE:NIO), and Lucid (NASDAQ:LCID), with lots of potential as well. But these loss-making companies carry significant downside risk, given their unsustainable increases in the past which were mainly tied to speculation.
With that in mind, I believe the following three EV stocks matter the most in the industry.
Compared to January, the current entry point for TSLA stock is not as compelling. The company’s growth rate has slightly declined year-on-year. However, this does not mean investors should ignore Tesla, as it remains the premier EV company in the U.S. and the E.U.
Some Chinese companies offer better prices and may have an edge in some niche areas, but these companies are unlikely to dominate in Western countries, given the current geopolitical backdrop. Thus, I see little competition for Tesla outside of China.
Furthermore, Tesla has a significant head start with regards to EV production and development. Let’s take Ford (NYSE:F), for example. The company plans to sell its EVs at an 8% margin mid-decade, which could take even longer to materialize than the company thinks. That’s much lower than Tesla’s current 15% net margin, which has a lot of headroom, even as the company slashes prices amid increasing competition.
Thus, I believe Tesla is the best EV stock you can buy for those who aren’t looking to speculate. This is a company producing substantial profits, and its market performance justify the EV maker’s premium 58-times earnings valuation.
BYD Co. (BYDDF)
BYD Co. (OTCMKTS:BYDDF) is Tesla’s biggest rival, selling 911,141 battery electric vehicles last year compared to Tesla’s 1,313,851. The growth of BYD on a relative basis is much faster than Tesla, as this company saw year-over-year growth of 184%. Thus, with Tesla’s growth rate coming in at “only” 40%, there’s a clear growth argument that can be made favoring BYDDF stock.
At this pace, BYD will likely surpass Tesla as the biggest BEV company by sales. If we include plug-in hybrids, BYD is already the world’s largest EV seller.
Now, the company’s margin remains much lower than Tesla’s, but is starting to move higher. Both its top and bottom lines are seeing significant expansion, as the Chinese EV market continues to mature. Over time, I think BYD’s EVs will provide the correct prices the Chinese middle class can afford, while Tesla’s premium prices and high margins are likely to make these vehicles less-competitive in China. BYD also has significant room for growth outside of China, in other developing countries as well. Tesla’s potential in such developing countries is much lower.
Nevertheless, investing in China-based BYD is riskier than Tesla. Due to current and upcoming sanctions, Chinese companies are facing geopolitical tensions and high tariffs in Western countries, and their products won’t have the technology edge anytime soon. Thus, it’s probably best to own these two EV juggernauts together to hedge one’s bets.
Mercedez-Benz (OTCMKTS:DMLRY) makes most of its revenue from combustion-engine vehicles, but it is still a solid play among EV stocks. The company sold 117,800 EVs last year, with this segment growing a whopping 124%. The company’s EVs compete with Tesla’s at the top end of the market, and the company’s well-established brand image can make its EVs a strong contender in the coming years.
What makes me particularly interested in the stock is its valuation. Mercedez-Benz currently trades at a price-earnings ratio of 6-times. That’s quite the bargain for the growth the business is delivering. Moreover, luxury products are less-susceptible to recessions and inflation due to these companies’ relatively high-income customer bases. Due to Mercedez’s low valuation and softer demand elasticity, I think DMLRY stock is a relatively a recession-resistant EV stock to own right now.
If the company’s investments pay off and its EV segment retains its triple-digit growth rate, this stock could deliver multi-bagger gains.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.