We are indeed living in interesting times – and in many ways, that’s a good thing. Take the automotive industry, for example. Technology is changing a rapid pace, and when it settles, it will dramatically change the way we drive. In 2030, our concept of ‘car’ will likely be unrecognizable to drivers from 1980.
The biggest changes are coming from power systems and artificial intelligence. AI will bring autonomous tech to our cars, making self-driving vehicles a reality. But the power systems changes will hit us first. In fact, electric-drive vehicles are already on our roads, and electric vehicle (EV) companies are proliferating rapidly.
For the moment, there are several roads to potential success in the EV market. Companies are working to position themselves as leaders in battery tech, or electric power trains, or to maximize their range and performance per charge. It’s a fact-paced industry environment, offering both opportunity and excitement for investors. Smart investors will look for companies capable of meeting scaling demands, once they have settled on marketable models.
Investment firm Morgan Stanley has been watching the EV industry, seeking out innovative new design and production companies that are positioning themselves for gains as the market matures. The firm’s automotive analyst, Adam Jonas, has selected two stocks that investors should seriously consider buying into, saying “As we survey the EV/battery startup landscape, we are prioritizing highly differentiated technology and/or business models with a path to scale at a reasonable level of risk.”
Opening up the TipRanks database, we’ve pulled up the details on both of Jonas’ picks to see whether they could be a good fit for your portfolio.
First up, Fisker, is based in Southern California, the epicenter of so much of our ground-breaking tech industries. Fisker’s focus is on solid-state battery tech, a growing alternative to the lithium-ion batteries that most EVs depend on. While more expensive that the older lithium-based systems, solid state batteries are safer and offer higher energy densities.
Fisker has been busy patenting its moves into solid-state batteries, a sound strategy to lock in its advances in this field. For EVs, solid-state batteries offer faster charging times, longer range per charge, and potentially lower battery weight – all important factors in vehicle performance.
Every car company needs a flagship model, and Fisker has the Ocean – an EV SUV with a mid-range price ($37,499) and a long-range power system (up to 300 miles). The vehicle features stylish design and room mounted solar panels to supplement the charging system, and is scheduled to enter serial production for the markets in 2022. The stylish design reflects the sensibilities of the company’s founder, Henrik Fisker, known for his work on the BMW Z8 and the Aston Martin DB9.
Fisker entered the public markets through a SPAC merger agreement last fall. Since completing the SPAC transaction on October 29, shares in FSR are up 112%.
Morgan Stanley’s Jonas is impressed by this company, describing the ‘value proposition of Fisker’ as “…design, time to market, clean sheet user experience and management expertise,” and saying that the 4Q22 launch schedule for the Ocean is likely to be met.
“Fisker is specifically targeting the personal owned/passenger car business as opposed to commercial oriented end markets, where emotive design and user experience matter more. Additionally, the company wants to create an all-digital experience from the website to the app to the HMI in the car and continued customer engagement through its flexible lease product,” Jonas added.
In line with his upbeat outlook on the company (and the car), Jonas rates Fisker an Overweight (i.e. Buy), and sets a $27 price target suggesting an upside of 42% for the coming year. (To watch Jonas’ track record, click here)
Turning to the TipRanks data, we’ve found that Wall Street’s analysts hold a range of views on Fisker. The stock has a Moderate Buy analyst consensus rating, based on 7 reviews, including 4 Buys, 2 Holds, and 1 Sell. Shares are currently priced at $18.99, and the $21.20 average price target implies a one-year upside of ~12%. (See FSR stock analysis on TipRanks)
Where Fisker is working on solid-state batteries in the context of vehicle production, QuantumScape is setting itself up as a leader in EV battery technology and a potential supplier of the next generation of battery and power systems for the EV market.
QuantumScape designs and builds solid-state lithium-metal batteries, the highest energy density battery system currently available. The key advantages of the technology are in safety, lifespan, and charging times. Solid-state batteries are non-flammable; they last longer than lithium-ion batteries, with less capacity loss at the anode interface; and their composition allows faster charging, of 15 minutes or less to reach 80% capacity. QuantumScape is betting that these advantages will outweigh the technology’s current higher cost, and create a new standard in EV power systems.
The company’s strongest tie to the EV production field is its connection with Volkswagen. The German auto giant put $100 million into QuantumScape in 2018, and an additional $200 million in 2020. The two companies are using their partnership to prepare for mass-scale development and production of solid-state batteries.
Like Fisker, QuantumScape went public through a SPAC agreement late last year. The agreement, which closed on November 27, put the QS ticker in the public markets – where it promptly surged above $130 per share. While the stock has since slipped, it remains up 47% from its NYSE opening.
For Morgan Stanley’s Jonas, involvement in QS stock comes with high risk, but also high potential reward. In fact, the analyst calls it, “The Biotech of Battery Development.”
“We believe their solid state technology addresses a very big impediment in battery science (energy density) that, if successful, can create extremely high value to a wide range of customers in the auto industry and beyond. The risks of moving from a single layer cell to a production car are high, but we think these are balanced by the commercial potential and the role of Volkswagen to help underwrite the early manufacturing ramp,” Jonas explained.
Noting that QS is a stock for the long haul, Jonas rates the shares an Overweight (i.e. Buy), and his $70 price target indicates confidence in an upside of 28% for one-year time horizon.
Granted, not everyone is as enthusiastic about QS as Morgan Stanly. QS’s Hold consensus rating is based on an even split between Buy, Hold, and Sell reviews. The shares are priced at $54.64 and their recent appreciation has pushed them well above the $46.67 average price target. (See QS stock analysis on TipRanks)
To find good ideas for EV stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.