There are, by some estimates, more than 300 Chinese companies currently manufacturing electric vehicles. A full 25% of all new cars sold in China this year will be all-electric or plug-in hybrid electric vehicles.
In the United States, about 5% of all new cars sold this year will be EVs or PHEVs. That number is expected to rise as buyers take advantage of the tax credits of as much as $7,500 for purchases of certain EVs. The tax credit was included in the recently enacted Inflation Reduction Act, and the amount of the credit depends on where the vehicle and its battery were manufactured or sourced. The subsidies will remain in effect for 10 years, ending the hit-and-miss subsidies of past years.
U.S.-based EV makers and battery suppliers are in line to benefit from the provisions of the act, provided they can untangle the supply chain issues that have hampered production for the past couple of years and have (or can make) sufficient capital to continue operations until a rising tide of U.S. consumers chooses an EV for their next purchase.
There will not be any shortage of choices: Tesla, Ford, General Motors, Lucid, BMW, BYD and the list goes on. Analyst Jordan Levy at Truist Securities expects the total available U.S. market for passenger vehicles to be right around $950 billion. That is where many of these companies will be fighting it out. Levy also estimates that demand for buses, vans and trucks adds another $209 billion to the market for commercial. On Wednesday, Levy initiated coverage on two EV makers and two battery suppliers: Rivian Automotive Inc. (NASDAQ: RIVN), TuSimple Holdings Inc. (NASDAQ: TSP), QuantumScape Corp. (NYSE: QS), and Proterra Inc. (NASDAQ: PTRA).
Rivian
Electric pickup and sport utility vehicle maker Rivian began deliveries of its R1T pickup earlier this year and deliveries of the R1S in late August. While the company continues to ramp up production, it also has started shipping the first of some 100,000 electric delivery vans to Amazon. The deal calls for all 100,000 to be delivered by 2030. The less-good news for Rivian is that its two consumer vehicles likely will not remain under the price cap of $80,000 to qualify for the new federal tax credit.
Truist’s Levy has initiated coverage of Rivian with a Buy rating and a price target of $65. He thinks the partnership with Amazon “not only provides a strategic advantage over EV competitors but helps position Rivian to compete with global incumbent OEMs in the commercial EV market.” Supply chain issues, access to capital markets, less-than-expected performance and weaker demand due to the macro environment are all risks to Truist’s rating and price target.
Rivian stock is down about 67% over the past 12 months, and Levy’s price target of $65 is well above the consensus of $52.65 and more than double Thursday’s closing price of $32.31. The stock’s 52-week trading range is $19.25 to 179.47. Rivian’s IPO occurred in late November of last year.
TuSimple
Self-driving truck maker TuSimple has been publicly traded since April 2021. It has racked up an impressive list of firsts, including the first autonomous trucking firm to conduct a totally hands-free semi with trailer run on public roads. While supply chain issues have pushed out deliveries, Truist sees the U.S. market opportunity for autonomous freight trucks at around $800 billion.
Levy calls TuSimple “a technological leader in the autonomous trucking space and [sees] the company’s well-defined path to commercialization & high-quality list of partners spanning throughout the trucking & logistics value chain providing an advantage over peers.”
Levy started coverage on the stock with a Buy rating and a $12 price target. Delayed deliveries to Navistar of Level 4 autonomous capability were down to supply chain challenges, and Levy thinks that “moderated near-term expectations provide [TuSimple] w/more runway to strengthen partnerships, reduce driver-out costs, & boost fleet-owner demand ahead of 2025/2026 customer deliveries.”
He also thinks that divesting the company’s China segment could reduce cash burn by 20%. The big risk for autonomous driving providers like TuSimple is whether ordinary people believe driver-out vehicles are safe.
TuSimple’s stock price is down about 80% over the past 12 months, and Levy’s $12 price target is below the average target of $19.14 from 17 analysts. The stock’s 52-week range is $5.99 to $43.79, and shares closed at $7.56 Thursday afternoon.
QuantumScape
Solid-state lithium-metal battery maker QuantumScape came public in late November of 2020, and the share price peaked at more than $130 within a month. Since then, the stock has dropped by more than 90%. Over the past 12 months, the stock is down by nearly 67%.
The company’s solid-state battery technology offers both range and safety improvements over conventional lithium-ion batters, but Truist does not expect the company to ramp production to gigawatt-scale until 2025 or 2026. Volkswagen has invested more than $300 million in the company, and six unnamed automakers are reportedly testing the products.
Truist’s Levy initiated coverage on QuantumScape with a Hold rating and a price target of $10. As his Hold rating indicates, Levy thinks the company’s technology is a winner, but not yet: “While other technologies aim to improve on energy density, we believe [QuantumScape’s] lithium-metal anode solid-state cell has the ability to drive the biggest step-change improvement in the coming years.”
Not only that, while the batteries may be more expensive when introduced, QuantumScape “could” shave 15% to 25% off their costs once production reaches scale. That promises solid margin growth over time.
At Thursday’s closing price of $8.36, the implied gain to Levy’s $10 price target is 19.6%. The average price target on the stock from 10 analysts is $12.78. The stock’s 52-week range is $8.22 to $43.08.
Proterra
Like TuSimple, Proterra is targeting medium- to heavy-duty commercial vehicles. The company is producing its fifth generation EV bus, called the ZX5, and already has buses and delivery vehicles on the road using its drivetrain and battery technology.
Levy comments that Proterra is a “key beneficiary” of both the Infrastructure and Inflation Reduction Acts thanks to “significant increases in funding for zero-emissions transit & school buses, newly established tax credits surrounding both commercial vehicles and domestic battery production as well as grants and funding for zero-emissions vehicles.”
Levy initiated coverage of Proterra with a Buy rating and a price target of $9. The company’s current challenges include untangling its supply chain, more competition from large producers and vertical integration by original equipment manufacturers, disruptions in charging infrastructure and an inability to raise capital for expansion projects.
Proterra’s stock is down about 50% over the past 12 months, and Levy’s price target of $9 is above the consensus of $7.50 and nearly double Thursday’s closing price of $5.34. The stock’s 52-week range is $4.26 to $13.22.
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