We recently published a list of 13 Most Promising EV Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Tesla, Inc. (NASDAQ:TSLA) stands against the other most promising EV stocks to buy according to hedge funds along with the industry outlook.
According to a September 13 report by S&P Global, the auto industry’s shift to electric vehicles (EVs) is accelerating, with 2026 seen as a pivotal year for adoption. By 2030, over 25% of new passenger cars sold are expected to be electric, as the transition away from internal combustion engines (ICE) gains momentum.
Major automakers are projected to produce over 70% of global EVs by 2030, up from just 10% in 2022. However, a few challenges remain, like range anxiety, especially for those without convenient charging options. Addressing these issues will require collaboration among automotive, utilities, government, and property owners, which could create a way for significant growth in vehicle electrification and potentially end the ICE era.
We discussed the market dynamics of the EV industry in our article, 11 Small Cap EV Stocks to Invest In. Here is an excerpt from the article:
“While the growth in the US and Europe is slowing down, China is picking up a significant pace and dominating the EV landscape. According to a World Economic Forum report, Chinese EVs are much cheaper than their Western counterparts, with an average price of $34,400, compared to $55,242 in the U.S. The price gap is driven by lower labor costs, favorable government subsidies, and more affordable battery sourcing.
Chinese automakers now produce more than half of the world’s EVs and are using their cost advantages to potentially dominate the global market. As Chinese brands gain scale and expertise, their competitive pricing could allow them to challenge Western automakers.”
The Electric Vehicle Shift and Its Economic Impact on Europe
While Europe saw significant adoption of EVs in the earlier years, it has seen a slowdown. According to an October 3 report by McKinsey, the growth of EVs in Europe poses both opportunities and challenges for the automotive industry, which currently contributes $1.9 trillion to the economy.
While electric mobility could add up to $300 billion in gross value added (GVA) by 2035, the industry could risk losing $400 billion if European OEMs’ global market share declines from 60% to 45%.
Key strategies for success include expanding the domestic battery supply chain, improving manufacturing capabilities, streamlining regulations, and investing in R&D and talent development. By proactively addressing these challenges, European OEMs can capitalize on the EV shift, generate new value, and secure the region’s economic future in the automotive sector.
Shifting Gears to the Inevitable Future of Electric Vehicles
In a CNBC interview, Young Liu, Chairman of Hon Hai Technology Group said that the future of the automotive industry will be dominated by electric vehicles, with hybrids playing a limited role due to advancements in battery technology. He made a note of current challenges such as charging times and range anxiety, but expects improvements in battery systems will eliminate the need for hybrids.
Liu outlined a path to profitability for EV companies based on three key strategies: “platformization, modularization, and standardization”. He believes these will help streamline operations and reduce the need for individual investments in proprietary platforms, which is a challenge for traditional manufacturers due to their existing structures.
Our Methodology
For this article, we used stock screeners and ETFs to identify over 40 companies with significant operations related to the EV industry. Next, we narrowed our list to 13 stocks most widely held by institutional investors. The most promising EV stocks are listed in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s Q2 database of 912 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 85
Tesla, Inc. (NASDAQ:TSLA) is the pioneer of the electric vehicle industry and has revolutionized the automotive and clean energy sectors. It specializes in designing, manufacturing, and selling BEVs, alongside offering advanced energy storage solutions and solar energy products.
It stands out as one of the world’s most valuable automakers and a leader in the EV market, influencing industry standards such as the North American Charging Standard (NACS) for electric vehicle charging. NACS has been used since 2012 and in 2022, the company opened it to other manufacturers, which led to widespread adoption among EV makers and charging networks.
In 2023, the company also announced the groundbreaking of its in-house lithium refinery in Corpus Christi, Texas, representing an investment of over $1 billion. The facility aims to improve the supply of battery-grade lithium hydroxide in North America.
All eyes are on Tesla (NASDAQ:TSLA) due to the upcoming robotaxi event on October 10. Analysts are keeping a close eye on it and many of them are considering it as a substantial event for the company.
As reported by The Fly, Analyst Colin Rusch from Oppenheimer expects that the company’s upcoming Robotaxi event will effectively highlight the company’s advancements in AI. Oppenheimer also believes that the company will illustrate how its investments in computing and software are creating unique advantages compared to its competitors.
However, the firm warned that the excitement surrounding the event might be hard to meet and that both supporters and critics of the company will find evidence to back their views. Oppenheimer currently rates Tesla’s (NASDAQ:TSLA) stock as Perform, indicating a neutral stance.
On the other hand, RBC Capital analyst Tom Narayan increased the price target on the stock to $236 from $234 with an Overweight rating. He emphasized that the company’s upcoming Robotaxi event is significant because it could show a business that accounts for $153 billion in revenue, making up 63% of the company’s overall value.
Narayan pointed out that the global Robotaxi market could reach $1.7 trillion in revenue by 2040, with several players like fleet operators, app providers, car manufacturers, and software developers competing for market share. The profit margins from these Robotaxi revenues are expected to be much higher than those of traditional car manufacturers.
Baron Partners Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q2 2024 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) manufactures electric vehicles, related software and components, and solar and energy storage products. The stock contributed as Tesla continued to drive vehicle manufacturing costs lower, accelerate the launch of new models, and invest heavily in its lucrative AI initiatives. Shareholders reaffirmed the CEO’s compensation plan, alleviating personnel and legal uncertainties. Despite material operational complexities resulting in significant shutdowns of key manufacturing facilities and lower sales volume, Tesla presented better-than-expected margins in the quarter. It expects to launch a lower cost model as soon as late 2024, which should result in accelerated revenue growth, reduced manufacturing costs, and increased factory utilization. The company continued to advance its autonomous driving capabilities, expanding its already significant data centers and developing its humanoid robot Optimus. These investments increased confidence in the attractive growth opportunities that remain ahead.”
Overall TSLA ranks 1st on our list of most promising EV stocks to buy according to hedge funds. While we acknowledge the potential of TSLA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TSLA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
