Tesla vs. Lordstown Motors: Which Electric Vehicle Stock is a Better Buy?
Companies in the electric vehicle (EV) space delivered big gains to investors in 2020. But for 2021, should one bet on an EV market leader Tesla (TSLA), which has concrete plans for growth and anticipates building 50% more vehicles this year than last, or gain exposure to emerging player Lordstown Motors (RIDE), which is still at a pre-revenue stage but is trading at an attractive multiple and for which analyst forecast massive growth in 2022? Let’s discuss.
Companies in the electric vehicle (EV) space delivered big gains to investors in 2020. And investors and analysts continue to be bullish on this sector for good reason. According to a report from EV-volumes.com, the number of EVs sold in 2020 increased by 43% to 3.34 million units, up from 2.26 million units in 2019.
EVs are now expected to account for 10% of global passenger vehicle sales by 2025, a figure that could grow to 58% by 2040.
The bull case for Tesla
Tesla stock has a market cap of $674 billion, indicating a forward price to sales multiple of 13.6. This is very steep for an automobile company. But Tesla is no ordinary enterprise. With a visionary CEO at the helm, Tesla is a market leader in this highly disruptive sector.
In the first quarter of 2021, Tesla delivered 184,000 vehicles, up from the 88,400 in the prior-year period. Over the past decade, Tesla has managed to scale operations and expand its product portfolio and time between battery recharges for its vehicles.
In 2020, Tesla gained 46% year over year to $10.74 billion. This allowed it to improve its gross margins by 437 basis points to 25.6%, while its free cash flow was up 84% at $1.87 billion. Tesla has existing production capacity to manufacture more than one million cars each year and is currently developing six more factories to meet growing demand. In 2021, Tesla forecasts it will sell 750,000 units, representing an increase of 50% year over year.
According to Wedbush analyst, Daniel Ives, Tesla stock is expected to hit $1,000 by March 2022. Ives has upgraded Tesla stock to outperform and increased his price target from $950. In an investor note to clients, the analyst wrote, “We now believe Tesla could exceed 850k deliveries for the year with 900k a stretch goal, despite the chip shortage and various supply chain issues lingering across the auto sector.”
The bull case for Lordstown Motors
Lordstown Motors is an automotive company that was founded in 2019 with the goal of developing and manufacturing light-duty electric trucks. It has developed its flagship vehicle, known as Endurance--a full-size pick-up truck. According to the company, Endurance’s production will begin in September 2021.
Lordstown Motors is still pre-revenue and did not generate sales last year. Analysts tracking the company expect it to report sales of $111.19 million in 2021. This figure is forecast to rise by an astonishing 1,260% to $1.5 billion in 2022, which means it is trading at a forward price to 2022 sales multiple of just 1.18x. Like most early-stage companies, Lordstown is also reporting an adjusted loss currently.
Lordstown Motors stock is currently trading 65% below its record high, due primarily to the sell-off EV experienced by EV stocks earlier this year and a short-seller report that accused the company of inflating its fleet orders. Noted short-seller Hindenburg Research alleged that one fleet order for 1,000 trucks came from a start-up that just has two employees.
In the event Lordstown manages to beat Wall Street estimates and provide solid guidance in the coming quarters, the stock could crush peers’ and broader market returns easily. Alternatively, it could also experience a significant decline if it continues to disappoint investors.
The final takeaway
Tesla stock has returned a monumental 15,850% since its IPO. This means an investment of $1,000 just after Tesla’s IPO would have ballooned to $159,500 today. Lordstown is currently trading near its IPO price and is in a similar to Tesla at the start of the last decade.
It is unlikely that Tesla will replicate its historical gains, but the company remains poised to outperform the broader markets given its leadership position in the EV space.
Alternatively, Lordstown has the potential to outperform Tesla stock but carries significant risks because it is still at a pre-revenue stage. We think investors with healthy risk appetites can place their bet on Lordstown and benefit from market-thumping returns in the long run if the company manages to execute flawlessly over the long run.
TSLA shares were trading at $761.83 per share on Wednesday afternoon, down $0.49 (-0.06%). Year-to-date, TSLA has gained 7.96%, versus a 10.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.Tesla vs. Lordstown Motors: Which Electric Vehicle Stock is a Better Buy? appeared first on StockNews.com