I’ve been seeing this ad for a couple days now from Hilary Kramer, who is pitching her GameChangers newsletter ($77 for the first year) with a bold promise:
“The 2,500-Mile Electric Car
“Charges in minutes and you could drive it for months.
“Hard to believe? You bet.
“But it could be coming to a showroom near you sooner than you think…”
Throwing around big numbers when it comes to electric cars tends to work well for newsletter publishers, as we’ve seen from Paul Mampilly’s oft-repeated pitch about a “12 million mile battery”, but which one is Kramer teasing here?
It’s one of those “it’s coming faster than you think” pitches that isn’t all that clear about the timeline, of course, but here’s how she puts the big picture dream:
“The 4,125% profits investors have made in Tesla pale in comparison to what lies ahead, as the world continues to race toward the all-electric future.
“A future powered by 2,500-mile-range electric cars that you can drive for months and charge in minutes.”
So no, to be clear, that does not exist today, and it won’t exist next year. Maybe it’s in a lab somewhere (there’s certainly an ongoing PR battle about whether secretive Quantumscape is close to those battery dreams, and they’re just one of the higher-profile hopefuls), and I’m sure fast-charging technology and battery technology will continue to improve, but we’re a long way from a 2,500 mile range and “charge in minutes” technology.
Who knows what the future holds — Kramer says that…
“Battery technology is advancing at a pace that will ultimately disrupt the auto industry in ways you simply cannot imagine.”
And that’s true of all technologies, really, our imagination in the early days often fails to anticipate an accelerating rate of change — the iPhone, after all, was laughed off as a toy compared to the much more practical and market-dominating Blackberry, and that was less than 15 years ago.
And everyone, from governments to auto industry leaders, is eager to lead the EV revolution over the next decade, with GM, Mercedes, Volkswagen and most of the other biggies promising to push harder on electric vehicles, in some cases selling only electric vehicles within 10-15 years… and with the new administration in Washington pushing clean energy incentives and infrastructure investments that might help to speed up that transition. So who knows, maybe the pace of evolution will accelerate again.
So what’s the key to this EV revolution? According to Kramer’s pitch, it’s China…
“China is the world’s main producer of not only electric motors, but batteries as well.
“This is why GM, Toyota, Mercedes and Tesla is there.
“Warren Buffett is there as well.
“This is why you need to be there too, because the pathway to profits runs through China.
“If you missed the 4,125% profits Tesla made over the past 12 years, you’re getting a valuable second chance to grab those kinds of profits in a Chinese company that one day could produce a 2,500-mile electric car and change the world forever.”
So yes, this is one of the Chinese EV makers being teased today… more on that market from the ad:
“China’s EV sales are forecast to reach 1.8 million units in 2021, up 40% from a year earlierAre you getting our free Daily Update
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“China’s EV sales could reach 6 million units in 2025
“All of this is driven by China’s own road map for an electric future, which forecasts energy vehicles to comprise 20% of total new car sales by 2025.
“But here’s the thing:
“The majority of those cars will be affordable vehicles — one that the average Chinese person can afford on their national average annual salary of $14,000 — putting the $100,000 Tesla out of the reach of the Chinese worker!
“This is why we expect Chinese electric cars to outsell their American counterparts. Our No. 1 company could be the biggest profit taker of all.
“Ironically, the reason isn’t technology. It’s the size of the market, rate of growth, low price offerings, marketing and most of all, BRANDING.”
So what’s this Chinese electric vehicle company she’s talking about? Let’s see what other clues she drops…
“With 200% gains over the past five months, our No. 1 pick is already on its way to big gains….
“A home-grown Chinese company
“Dominates the $45 billion Chinese electric car market
“Focus on the self-driving strategy”
And apparently a big part of the appeal is that they’re making electric SUVs, not sedans:
“Think the Tesla of China, only at a lower price point, that competes with gas-powered SUVs, the largest segment by volume in China.”
We also get some ownership hints, like a note that as of the September disclosures Credit Suisse owned 10.52% of the shares (and, with 9,990,793 shares worth $173,739,890, we can do the math and say that the stock price was around $17 at the end of September).
And, of course, the crazy promise of “next Tesla” potential gets repeated many times:
“If the company can maintain its 48% compounded growth rate, as we forecast, then we could see its stock price double every year for the next five years just as Tesla has since 2016.”
So who is it being pitched today? Thinkolator sez Hilary Kramer is teasing Li Auto (LI), which went public in the US last July at $11.50, was indeed at around $17 in late September, and after a big surge last year in the EV bubble enthusiasm is back down to the $19s.
So what’s up with that “200% gains over the past five months” bit from the ad? That must mean that Kramer penned these words in late November, when the stock was in the low $40s… and, yes, for at least one hot minute, did gain 200% in about five months. That may turn out to be the beginning of great things eventually, someday, but if you had bought on that enthusiasm in November you’d be sitting on 50%+ losses and probably feeling a little grumpy.
Here’s how Li Auto describes itself:
“Li Auto Inc. is an innovator in China’s new energy vehicle market. The Company designs, develops, manufactures, and sells premium smart electric vehicles. Through innovations in product, technology, and business model, the Company provides families with safe, convenient, and refined products and services. Li Auto is a pioneer to successfully commercialize extended-range electric vehicles in China. Its first model, Li ONE, is a six-seat, large premium electric SUV equipped with a range extension system and cutting-edge smart vehicle solutions. The Company started volume production of Li ONE in November 2019 and delivered over 33,500 Li ONEs as of December 31, 2020. The Company leverages technology to create value for its users. It concentrates its in-house development efforts on its proprietary range extension system, next-generation electric vehicle technology, and smart vehicle solutions. Beyond Li ONE, the Company aims to expand its product line by developing new vehicles, including BEVs and EREVs, to target a broader consumer base.”
The expectation is that Li sales this year will roughly double, hitting close to $3 billion, but there’s also some fear that all automakers will continue to be bedeviled by semiconductor shortages that are slowing production, and that it might be worse for the smaller ones, like Li, who have less weight to throw around. Their financials look pretty decent with current expectations, they’re only losing a little bit of money at this pace of ~5,000 vehicles a month, and analysts expect them to be profitable in 2022.
The three major Chinese EV stocks that are US-traded, Li, Xpeng (XPEV) and NIO (NIO), pretty much all trade together — they soared as deliveries picked up and enthusiasm crested late last year and into January, and the collapsed as worries about chip shortages and deliveries and valuations, and perhaps competition, have picked at their shares this year. I’d say NIO is the darling thanks to its larger size and established presence in the US markets, and LI the smallest and most “value-priced” (6X forward sales, versus 12X for NIO), but they’re all trading on sentiment in a volatile sector.
This is what that has looked like on the charts so far this year (NIO in blue, LI in orange, XPEV in red, and we’ll throw in BYD (BYDDF, in green), which is the one Buffett’s Berkshire Hathaway has owned for more than a decade) — along with Tesla, in purple for context:
And if we go back a full year, to LI’s IPO in July of 2020, then it stands out as the weakest performer of the bunch… that’s a hard company to speculate on if you’re looking for momentum (which basically just means “stocks that go up tend to keep going up”), but perhaps it’s a sign that the shares are coming down to a level that might eventually make sense for fundamental reasons.
Can’t say that it’s fallen enough to look tempting to me just yet, not in a competitive sector where I don’t have any real insight into which companies will be the leaders in the next five years… but who knows, maybe Hilary Kramer has some of that insight for you, perhaps Li Auto really does have better marketing or a stronger brand for the Chinese middle class EV buyers than NIO or Xpeng or BYD or Tesla or whoever else (or Geely, or Chery, or SAIC, or Ford, or GM, or Volkswagen, or Toyota, or… well, you get the idea). I’m not there yet.
Oh, and just FYI: Yes, Credit Suisse was a big holder of LI at the end of September, with 9,990,793 shares… as of the December disclosure, though, their shareholding had dropped to 4,634,284 shares, so sometime in there they sold a little more than half of their stake, just in case you were depending on their endorsement (there were plenty of institutional owners buying at the time, too, to be fair).
Personally, I have trouble judging the prospects of all the EV companies. That’s not because there’s no potential, there clearly is and the electric vehicle business seems almost guaranteed to grow quite dramatically. It’s mostly because I can’t get a handle on the competition, with almost every automaker making electric cars and with some giant markets, like China, home to huge numbers of EV producers with varying brand appeal and sales and production capacity and technological leadership (or lack thereof). Tesla has clearly run away with the early “brand” leadership globally… what comes next? I have no idea. It brings to mind one of Warren Buffett’s examples from this past weekend’s Berkshire Hathaway Annual Meeting — he noted how hard it is to pick stocks even if you see an obvious trend and even if that trend plays out dramatically well, and his example was US automakers of a century ago. They were at the cusp of something great… but there were also a couple thousand of them at various times from the 1890s to the 1930s, and most of them didn’t ever amount to anything. Even Henry Ford’s first couple efforts were expensive failures (something you’ll hear in every self-help talk given to aspiring entrepreneurs and inventors, right up there with Thomas Edison’s first 1,000 unsuccessful attempts to invent the light bulb).
But anyway, change is coming — and even if the odds might be slim, it’s fun to try to pick the winners… just remember the losers when you’re daydreaming.
(That’s hard to do, and goes against all the financial
pornography punditry that’s always grabbing at our attention — “if you had bought Amazon or Alphabet 20 years ago, you’d own your own country by now!” — and it’s even got it’s own name, “survivorship bias”, in which we think back and say that of course we would have known that the internet would be huge, and Google would be a guaranteed winner, neglecting to bring to mind that in 1998 Google was just the latest in a long string of search engines, some of which were run by large and successful technology businesses and attracted huge amounts of investor capital. Google is effectively the only survivor, and, to be fair, it was headed pretty inexorably toward monopoly even when it came public several years later, in 2004, after the dot com collapse had wiped out so many of the players… but search was still somewhat competitive then, and investing in that era in any combination of other then-possible leaders like Altavista and Yahoo and Lycos and AOL and Netscape and Ask.com and Inktomi would have been a drag on any portfolio. We’re optimists, we remember and celebrate winners and quickly clear the losers from our minds, and that impacts our assessment of the probability of success for future ideas on future hot trends.)
And Kramer also throws a few other ideas at the wall in her EV “Special Report”, so what might those be? Anything more timely than picking LI in November?
“I’ll tell you about four additional electric car plays I believe are headed for money doubling annual growth and then some.
“The first is a classic designer-driven high-performance vehicle that has $400 million in advance orders with the potential to outsell Tesla in the U.S.”
“Advance orders” for these not-yet-in-production electric vehicles are always a little squishy, so there are a few companies that could match this one… the two most likely matches here are probably Fisker (FSR) and Lucid Motors — Fisker went public through a SPAC merger a few months ago, and Lucid is still planning to do the same but hasn’t closed the deal yet (their merger is with Churchill Capital IV, so if all goes well CCIV will become Lucid at some point soon). Lucid is making some exciting promises about their car, which looks to some degree like the next evolution of the Tesla Model S and is often pitched as the most likely “pure play” competitor in the US (though yes, of course, Audi and Porsche and BMW and Ford and everyone else is going after that premium luxury EV market as well).
“The second is the company makes the cooling systems that virtually every electric battery manufacturer in the world must buy because its technology keeps lithium cool and from exploding–which is why the company’s stock price has practically doubled over the past six months.”
I don’t get the impression “cooling systems for lithium batteries” is a monopoly business, that seems to be an area where a lot of major auto parts suppliers are involved — I’ve certainly seen it come up, for example, with major suppliers in Europe (Valeo (VLEEF) and South Korea (Hanon (018880.KS)), and there are lots of makers of chillers and cooling plates for batteries. Maybe there’s a pure play in this area that I haven’t run across or that stands clearly above the rest, but given those clues I’ll have to leave it to your guesses. Force me to name someone, and I’d go with Valeo.
“The third I consider the perfect urban commute vehicle, with 100 mile range, 80 MPH top speed, fully charged in three hours AND is easy to park. With the stock up 277% over the past 12 months, I see this stock continuing its winning ways throughout 2021.”
That “up 277% in the past 12 months” bit almost certainly applies to late November/early December, just as with LI, so we can be pretty certain that this is a tease of ElectraMeccanica Vehicles (SOLO), which makes the one-person three-wheeled Solo. The specs match, 80MPH and a 100 mile range, and it’s a pretty cute little car.
The Solo is pitched as a $18,500 purchase and, like other EV companies, they have plenty of pre-orders — whether or not it really takes off, we won’t know for a while. Three-wheeled cars have been around for as long as four-wheeled cars, and have generally failed to get any traction, but if you need an EV that costs less than $20,000 it will probably have to be something limited — souped up golf cart-looking buggies, enclosed motorcycles, or something else a little unusual like this one-seater. The cheapest “real” compact car EVs that would be viable for urban driving, like the lowest-spec Minis or Mazdas, are down in the low-$30,000s range last I checked, and generally have a driving range of near 100 miles too, and they’re also not very popular.
But, well, maybe this time will be different — it’s hard to predict fashion, and they look cute and zippy. ElectraMeccanica has made a few Solos for press events and such, though full volume production is not ready yet and we don’t know what the real orders would be like, and they are also taking reservations for some larger two-seater EV sports cars that are further away from being real products.
Investors have lost some of their enthusiasm for SOLO, as with so many other EV stocks, the shares are down 50% or so since November… but this is also a genuine small-cap stock, with a market cap now of $450 million, so if the product is even a niche hit that might end up being justifiable someday. I’d rather buy the car than buy the stock, though it looks like it would give me claustrophobia.
The fourth is the largest lithium producer in the world. As you’ll see in your free report, this top-rated company is set to dominate the lithium market the way Amazon dominates online sales. Up 234% over the last five years, we see this company repeating those gains over the next five years.
That would pretty well have to be Albemarle (ALB), which got a little pop recently because they at least partially resolved their dispute with the Chilean government over reporting of lithium reserves. There are several large lithium producers outside of China, with most of the low-cost production coming from the salars of Chile and, more recently, Argentina, so the two leaders in that space in recent decades have mostly been Albemarle and Chilean giant SQM (SQM).
If lithium demand is going to rise as quickly as EV evangelists believe, and that sure seems more likely now than it did a decade ago when similar claims were made, then all the major producers who can ramp up capacity and enjoy rising prices should do quite well — exactly when prices adjust or how that flows into earnings is tough to predict, but analysts expect that ALB will begin to grow again next year after a couple down years, so with $4.96 in earnings per share expected they’re trading at about 33X forward earnings.
For growth beyond that, they’ll probably need either meaningfully higher lithium prices or some substantial expansion… and expansion is in the plans, mostly in China and Australia, though they also have possible projects in Nevada and North Carolina that might make sense at higher prices. They’re investing quite a bit already, with higher operating costs, but they do also expect their realized lithium carbonate prices to be lower in 2021 than 2020, so a lot of the quarter-to-quarter numbers will be impacted by that really uncertain balance between demand and supply — lithium is not all that rare or hard to find, but it takes time to ramp up production or build new facilities, and the price had fallen by 75% or so before it spiked up and doubled in the early months of 2021, so you can’t blame investors — or CEOs who have to make expansion decisions — for being a little cautious.
If I were investing in lithium I’d probably look first at Albemarle, too, though I’m also intrigued by Orocobre’s (ORL.TO, ORLXF) deal to merge with Galaxy (GALXF) and join the big leagues (and get a little geographical diversification… the investor presentation for that deal is here). And I agree that we’re pretty likely to have a sustained bull market for lithium carbonate for batteries over the next ten years… but, as 2018-2020 showed us, we can also go through periods of oversupply when prices fall and the numbers disappoint.
And that’s all I’ve got for you today, dear friends — a new ad that I haven’t seen before, yet it seems to be based on the exciting performance that these stocks were showing five or six months ago. The bad news? The lusty momentum is gone from those stocks, for the most part, (with the exception of Albemarle). The good news? Well, if you loved these companies in November… perhaps you’ll love them twice as much at half the price.
If you’ve got favorites in this bunch, or other stocks in the electric vehicle world that you think are worth our investment dollars, please feel chime in with a comment below. Thanks for reading!
Disclosure: Of the companies mentioned above, I own shares of Berkshire Hathaway, Amazon and Alphabet. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.