Electric Vehicles or How to Invest into New Players in the Market**

 In the space of one year, Tesla's shares have soared from $130.19 to $677.02, with its market capitalization taking the top spot among electric and non-electric automakers. What other prove do we need that the electric vehicles are here to stay?

Figure. A snapshot of the market capitalization of automakers. The color represents the price change during the last trading day.  

 

However, investors still don't know enough about the alternatives to Elon Musk's company. Nevertheless, Bloomberg estimates that by 2022 about 500 different models of electric vehicles will be available worldwide: the majority of them will be produced by new players in the market. So, from the point of view of investment, what is better? Market leader or new entrants. Of course, industry leaders are usually a safe investment, but there is always the risk that these stocks are overvalued. On the other hand, new entrants are risky but the returns can be much more lucrative.

Without a doubt, NIO, a Chinese company, is a formidable contender that already has a presence in China, the U.S. and Europe. Founded in 2014, NIO has made great progress in offering the 5, 6, 7 seat vehicles and recently produced its 100,000th vehicle. However, the company's profits are still below break-even, as well as for most companies entering this new market.

But is this a problem for an investor? Profitability is only one measure among others. Many of today's best-known companies did not start out with a profit. Amazon, for example, founded in 1994, posted its first net profit in 2015. Instead of focusing on profits, Amazon focused on growth, the result of this strategy can be seen clearly today. 

So, how do you find the right investments among the start-up electric vehicle manufacturers? Let's go back to the basics. Even if the net profit is not so important, the revenue and earnings growth show us the development of the company and a proof that there is a market for its products. Another measure to consider is the P/S or the price-to-sales ratio, i.e. the share price divided by the sales figure. For startups it is also a rough estimate of the enterprise value.

Additionally, with the concentration of the new entrants in the US and China, and the regulatory risk that this brings (think of trade tariffs), one can look at the country as an important consideration.

Finally, looking at the target price is a good way to balance your estimate against the opinions of other analysts. These are our favorite young companies*:

Electrameccanica Vehicles (SOLO)

Is a Canada-based, single-seat electric vehicle manufacturer. 

http://www.electrameccanica.com/

Share price : 4.57

Price/Sales (ttm): 905.61

Quarterly Revenue Growth (yoy): -10.00%

Quarterly Earnings Growth (yoy)

N.A.

Country : Canada

Target : 9.00

Green-Power Motors (GP) 

Is a producer of fully electric transit and school buses.

http://www.greenpowerbus.com

Share price : 19.36

Price/Sales (ttm)            50.50

Quarterly Revenue Growth (yoy)

-51.80%

Quarterly Earnings Growth (yoy)

N.A.

Country : Canada

Target: N.A.

Workhorse Group Inc. (WKHS)

http://www.workhorse.com

Is a technology company that manufactures electric vehicles and aircraft in the United States. It also develops a cloud-based monitoring system for route optimization.
Share price : 12.4

Price/Sales (ttm)	1126.41
Quarterly Revenue Growth (yoy)	24,826.20%

Quarterly Earnings Growth (yoy) 42,713.10%

Country : USA
Target: 19.40

 

Do you like them too? Respond in the comments.

*As of 2021-04-13 before opening:

** The opinions expressed here do not constitute a financial advice