3 stocks of electric vehicles to avoid at all costs in 2021

Shares of electric vehicles rose in 2020 as investors eagerly bought into the revolution disrupting the auto industry.

The potential is real, but stocks seem to be getting ahead. Many companies that have experienced a sharp rise have yet to generate significant revenue, and even those that sell products trade at very low automatic valuations.

Some of these companies will turn out to be long-term success stories, but for now, stocks look frothy. Here’s why three Fool.com contributors avoid buying QuantumScape (NYSE: QS), ElectraMeccanica vehicles (NASDAQ: SOLO), and You’re here (NASDAQ: TSLA) as we approach 2021.

This stock of batteries is overheating

Lou whiteman (QuantumScape): I am currently a shareholder of QuantumScape, so it may seem strange to me to advise others to avoid it. Conclusion: I love the potential of this company, but I can’t even begin to justify the current valuation.

QuantumScape is developing a lithium-metal solid-state battery which, in theory, has many advantages over the lithium-ion batteries currently in use. The solid-state battery, on paper, should be more stable and offer greater energy density than the current generation of batteries. This means it should be safer and offer more miles per charge.

The company recently said it believes it can make batteries that can be charged in just 10 minutes, making electric vehicles more competitive against a fast-refueling internal combustion engine.

The potential is huge, but there are a lot of “ifs” at the moment. QuantumScape believes it will take five to seven years to deploy its batteries on a large scale. And he’s hardly the only one pursuing technology, with Toyota Engines among competitors with deep pockets.

QS data by YCharts

The problem is that the market has already incorporated this potential. QuantumScape shares have risen more than 400% in its six weeks as a publicly traded company, giving it a market cap of over $ 40 billion at the time of writing. By comparison, the market values ​​both Ford engine and Fiat Chrysler Automobiles at about $ 35 billion each.

Even if everything goes according to plan, I’m not sure a battery maker is worth that kind of assessment. And given the risk involved and the long timeline, there is no way to justify it today.

A month ago, you could justify purchasing QuantumScape as a small piece of a diverse portfolio and hope for the best. But after recent gains, this is a stock for the radar screen at best. The current QuantumScape share price is elevated by a euphoria that I believe should not last until the company ships the product. This company has great engineers, but they haven’t found a way to make the stock defy the laws of gravity forever.

This is not the Tesla fighter you are looking for

John Rosevear (ElectraMeccanica vehicles): I know there are people who like this stock, but not me. To be blunt, when it comes to electric vehicle starts, ElectraMeccanica doesn’t have much to offer.

For those who might not have heard of ElectraMeccanica, it’s a Canadian start-up that makes an original little vehicle called Solo, a three-wheeled single-seater electric commuter vehicle. The Solo has a top speed of 80 miles per hour, a range of around 100 miles, and it starts at $ 18,500. The company plans to use the funds it raised by going public to build a plant in the United States, and is currently considering sites in Arizona and Tennessee.

Sounds okay, right? Wait. ElectraMeccanica shipped its first vehicles in the third quarter, but they did not go to actual customers. The company said the first batch of Solos will be used “specifically for high ROI activities, including press events, marketing, retail distribution, road tests, for commercial and advertising purposes as well as fleet demonstrations “.

ElectraMeccanica lost almost C $ 15 million in the last quarter, which is not so much in the grand scheme of things – and not surprising, given that it shipped its first products in the quarter – but it was is three times more than she lost. in the period of one year ago. It is not known when the real income will start to arrive, let alone the real profits.

The good news is that ElectraMeccanica had around C $ 100 million in the bank at the end of the third quarter, which keeps it rolling for a while. But I don’t see anything here to justify its current market cap of $ 520 million – let alone a big increase over the next year. At least for now, I think auto investors interested in EV stocks are best served by overlooking this one.

Tesla is now a real automotive company. This is not necessarily good news for shareholders.

Rich smith (You’re here): At first glance, finding stocks of electric vehicles to avoid in 2021 seems almost too easy. After all, most of the hot names in the industry – NIO, QuantumScape, Electrameccanica – have no profit in their name and can never earn anything. In contrast, Tesla is the biggest player in the electric block, with five consecutive quarters of positive generally accepted accounting principles (GAAP) profits to its credit, and an excellent chance of meeting its goal of delivering 500,000 electric cars this year. Tesla is finally a viable auto company, and qualitatively better than any of these other EV stocks mentioned.

So why am I choosing Tesla as my EV stock to avoid in 2021? Precisely because it has become a viable business – and can ultimately be seen as an established business, rather than just a ‘story’.

Think about it. What did Tesla have to do to be considered a “success” in 2020? Simply reporting any positive GAAP earnings in the first and second quarters of 2020 was a sufficient improvement over its performance in the first and second quarters of 2019, when the company lost money. Earning just $ 0.27 per share in the third quarter of 2020 was enough to improve third quarter 2019 earnings by $ 0.16.

But now that Tesla at made profits in each quarter of 2020 (it is presumed to have made a profit of $ 0.68 per share in the fourth quarter, according to data from S&P Global Market Intelligence), and also increased its profits sequentially, which Tesla will have to do in 2021 to be considered successful?

Logically, investors will want to see earnings continue to grow, both sequentially and from year to year. And yet, analysts predict that the company’s very first quarterly report of 2021 will show a slight decline in earnings from fourth quarter levels. And each quarter thereafter will offer Tesla the potential to disappoint investors – by earning less than the previous quarter or simply increasing less than expected year over year.

Perversely, unlike all the EV start-ups on the market today, now that Tesla is “a real business” it is going to be judged by the standards generally applied to genuine automakers like Ford and General Motors, which operate on single-digit profit margins and have single-digit P / E ratios unlike Tesla’s three-digit P / E. That, to me, makes Tesla one of the riskiest stocks in the electric vehicle industry.