Returns as of 11/25/2021
Returns as of 11/25/2021
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Ever since Rivian Automotive‘s (NASDAQ:RIVN) initial public offering (IPO) on Nov. 10, share prices of electric vehicle (EV) stocks have been all over the place. Another volatile stock has been Lucid Group, (NASDAQ:LCID), which is an up-and-coming EV play in the luxury sedan market. Rivian and Lucid are now the No. 2 and 3 largest U.S. automakers by market cap behind Tesla — which is pretty amazing considering neither electric car company is producing cars at scale yet.
Folks looking for value in the EV industry may find themselves with few options considering share prices of Tesla, Ford, and other companies are all up big on the year. Aeva Technologies (NYSE:AEVA) and Arrival (NASDAQ:ARVL) are two beaten-down stocks with a lot of potential. Here’s what makes each a great buy now.
Image source: Getty Images.
Daniel Foelber (Aeva Technologies): After going public by merging with a special purpose acquisitions company (SPAC) in March, share prices of Aeva Technologies are now hovering right around their 52-week low. Even with the stock’s decline, the machine perception and lidar company is valued at $2 billion despite no meaningful sales. Sound familiar? Aeva is like Rivian in the sense that its value derives from what investors think it can become, not what it is today.
To Aeva’s credit, the company is on track to hit all the goals it set for 2021. These goals included preparing the company’s supply chain to begin deliveries in 2022, partnering with companies like Nikon and Plus (a self-driving truck tech company), and working with suppliers such as Fabrinet to produce its 4D lidar chip module.
Since 2019, Aeva has been working with Plus on its 4D lidar solution. “Plus selected Aeva for its unique combination of ultra-long-range and instantaneous velocity measurement, which enhances Plus’ long-range perception system and provides faster response time in safety-critical situations,” said CEO Soroush Salehian on the company’s Q3 earnings call.
Aeva believes that adoption of conventional frequency-modulated continuous wave (FMCW) technology has been held back for years because of the trade-off between range and resolution. Aeva’s competitive advantage is that it can sense velocity and position from 500 meters away. This range makes it an ideal solution for the truck industry because trucks need more time to brake than passenger cars.
“This [Aeva’s signal processing algorithms] enables Aeva’s solution to reliably measure and classify objects with higher confidence and at longer distances than legacy lidar solutions,” continued Salehian. In sum, partnering with companies like Plus and landing deals with Taiwanese manufacturers like Fabrinet sets the stage for Aeva to begin producing and delivering its products in the coming years.
Although it has a lot of potential and looks good in testing, Aeva’s technology is yet another solution with limited real world experience. Although software means everything in the perception technology industry, Aeva does have some advantages that give it a leg up on the competition. It has a lot of cash on its balance sheet. And it believes its solutions can work not just in autonomous driving, but also in consumer electronics, healthcare, industrial robotics, and even security.
Howard Smith (Arrival): Before it went public through a special purpose acquisition company (SPAC) merger in March 2021, start-up Arrival pitched itself as a different kind of EV company. It set itself up to use a decentralized manufacturing model with lower capital-intensive “microfactories” that could use existing commercial spaces and warehouses to bring production close to individual cities and customers.
It is currently building its first two in the U.S., including one to be used to supply early investor United Parcel Service with 10,000 of the company’s purpose-built electric delivery vans. But eight months into its public life, Arrival has discovered something similar to what Elon Musk famously said in an interview about his company’s early manufacturing problems. Musk said “production is hell,” and Arrival seems to be finding that is true.
In its third-quarter financial report earlier this month, Arrival reset its entire production schedule due to access to capital, saying, “previous long-term forecasts from the merger should no longer be relied upon.” About a week later, the company announced it would be raising additional capital through two separate debt and stock offerings. That was enough for many investors in this speculative name, and the share price plunged. At its recent price, the stock is more than 50% below where it was in March upon its public debut.
With more than $500 million coming from the new capital raises, Arrival plans to continue toward its reset production goals. It now aims to have production started for its electric buses in the second quarter of 2022 and for its vans in next year’s third quarter from two different factories. This week, in line with its new time frame, the company unveiled the electric bus prototype and Arrival President Avinash Rugoobur gave a tour to Reuters. That bus will be built at its South Carolina plant, and Rugoobur told Reuters it “is cheaper than any other electric bus out there and competitive with diesel.”
The question for investors is whether the company is truly capitalized enough to stick with its newly released development and production plans. The damage has been done to existing shareholders, and much success is still built into its current valuation at a market cap of about $6.5 billion. But those looking to speculate in the EV sector could now get into this beaten-down stock at a much lower price than previous buyers, if the unique business model is one to believe in.
Aeva and Arrival aren’t cheap by conventional metrics. But both companies have a clear path forward. In an industry with many high-risk, high-reward investments, building a basket of EV growth stocks can be one of the best ways to insulate your portfolio from steep losses while still capturing upside.
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Stock Advisor launched in February of 2002. Returns as of 11/25/2021.
Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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