7 growth hacks for a bulletproof electric car portfolio
Tesla (NASDAQ: TSLA) has been synonymous with electric car stocks for years. While other automakers have toyed with electric vehicle technology, no one has brought as much skin into play as Elon Musk and his company. But with the increasing demand for electric vehicles, we've also seen a rapid increase in public companies that specialize in this area. However, many wonder how to invest in this exciting market without getting burned.
Investing in growth is undoubtedly a central component of short-term and longer-term strategies. Even if your goal as a young investor is to have a comfortable retirement, you most likely cannot play it safe. As with anything in life – whether you're pursuing a career or buying a home – you have to take risks. At the same time, you can't toss money at every opportunity, especially in highly variable markets like electric car stocks.
Don't get me wrong – not every EV player is a speculative proposition. Some that I would argue are stable companies, if not downright boring. Hence, it is important to know how to invest in growth rationally. With new markets there are undoubtedly opportunities. But with that comes the specter of the unknown. InvestorPlace – Stock market news, stock advice and trading tips
When looking to buy a new car, many consumer groups recommend avoiding buying the first year of production of a particular model. This is because the issues were not resolved. This becomes a bigger problem when you work with cars that have new technology built in.
It's really the same principle as investing in growth. Instead of just buying the latest EVAC-related Special Purpose Acquisition Company (SPAC), investigate the target organization. Questions you might want to ask are:
Does the EV company have the right product or business plan?
Who is the management team and has experience with electric vehicles or car development?
Does the pricing of the electric car make sense in relation to what it offers?
These are examples of questions you should ask about any growth investment opportunity related to its specific sector. In EV stocks, however, the sudden surge in stake suggests that there will be at least some losers. Here are some of the best ways to invest in growth profitably.
Branding is the best way to invest in growth
While Tesla is never able to get front page news, not all is positive. A case in point is an incident near Dublin, California. As Nathaniel Galicia Chien drove with his parents in their Tesla Mode Y right next to the showroom, he heard a stream of air coming in.
In an interview with TheVerge.com, Chien recalled, "I thought a window was open … but half a minute later the entire sheet of glass on the roof just blew away in the wind." The all-glass roof ripped off the chassis as the family drove down Interstate 580, according to local NBC news channel.
This wasn't just embarrassing for Tesla. it could very well have been fatal. But will it have an impact on TSLA stock? Probably not.
As terrible as this defect looks, Tesla has an incredibly strong brand. In a way, the company is like President Donald Trump. It can do what it wants and get away with it – within the limits of reason. And that's why you choose Brand Power if you want to know how to successfully invest in growth, especially in electric car stocks.
Look, Tesla's electric vehicles may not be special, as this incident shows. Apple (NASDAQ: AAPL) also wowed the world with the iPhone, but the competition got it. Still, Apple stays at the top because of its brand. This is a key characteristic to consider with any type of growth investment.
People, people, people
When it comes to starting a high-traffic business, everyone recommends that you consider location, location, location. You could have the best business in the world and still fail the bottom line because your business is in it. Hence, smart entrepreneurs will invest whatever they can to find the best location they can afford.
Unsurprisingly, the same principle applies to many successful EV manufacturers. You want your target companies to invest in the right leaders and managers working in the right roles. In other words, it's about people, people, people.
Although it sounds clichéd, people are important. For example, Ford (NYSE: F) is a traditional automaker that has lagged behind in auto interest. Recently, the American icon turned towards electric vehicles and introduced the Mustang Mach-E to the public. From a technical point of view, everything about this debut was top notch: the Mach-E looked fantastic while delivering great performance and long range.
For automobile enthusiasts there was only one problem: The new Mustang was an SUV!
As you know, Mustangs have always been two-door pony cars. Having the Mustang logo on an SUV was sacrilege for many. The problem, however, is that fewer people are buying such sports cars. To that end, Ford made the business decision to go for what was right for the company.
That's the kind of smart, forward-thinking strategies you need. If you want to know how to invest in growth, read the leadership team.
The spirit of innovation
If you've followed my work, you may get the feeling that I despise mediocrity. If you don't, let me tell you straight away: I despise mediocrity.
In all honesty, I believe mediocrity and consenting to it is the greatest catalyst for American failure. In my view, all of our problems – racism, corruption in government, moral decline, as you call it – stem from mediocrity. From parents who refuse to raise their children properly, to adult adults who keep pointing their fingers at something or someone else, mediocrity drives these negative behaviors.
Similarly, a company's approach to mediocrity – whether it embraces it or eschews it – is a key indicator. If you want to know how to invest in growth with reasonable probabilities, choose organizations with a spirit of innovation.
Among the stocks of electric cars, Toyota (NYSE: TM) comes up with a name. After the destruction of World War II, Japanese manufacturers like Toyota had to look for scrap. During this time of extraordinary obstacles, just-in-time inventory management became mainstream. Much of the efficiency Toyota is known for is due to this innovation.
Today Toyota is a leading provider of advanced EV battery technology, researching and developing solid-state batteries. Sure, Toyota could easily rest on its laurels, but that's not what its brand is about. When looking for growth investment opportunities, you should seek the spirit of innovation, not mediocrity.
Use some "quant" for growth investments
While the above ideas on how to invest in growth are useful in filtering out the best electric stocks to add to your portfolio, they are subjective. For example, the results of branding are easy to quantify: you simply look at metrics such as deliveries or the average sales price. But the brand itself and the power it conveys are subjective.
Some people love Tesla. And others hate the brand so much that they can't help but deface it.
However, this doesn't mean that everything about electrical stocks is subjective. For example, in early September, I discovered that Tesla stock has a strong correlation with Plug Power (NASDAQ: PLUG) stock price movement. Granted, these are different companies, but what they have in common is the development of alternative energy vehicles.
Apparently that's good enough for PLUG investors. And that's the main reason I said buying the stock was like buying TSLA for $ 13 (the price of PLUG at the time of writing). Earlier this month, I discovered that the strong correlation still persists. Coincidentally, even though they have different chart patterns, both stocks have the same bullish implication.
So before diving into any of the available electric car stocks, compare their performance with a proven leader like Tesla. If they generally go the same way, you will have greater confidence in the performance of that target.
Whether you are looking to figure out how to successfully invest in growth in the EV market or some other unrelated sector, the brass nails you should focus on. Especially with any technology name, don't let the forward-looking innovations and marketing literature distract you.
It is absolutely essential to listen to what a CEO has to say about their company. However, an objective analysis will keep you and your portfolio happy.
To that end, I encourage anyone interested in investing in EV growth to consider the business proposition. Yes, this slim, sexy electric car or SUV can seduce your heart. But without the combination of a viable business plan and target consumer market among other metrics, you might consider investing in speculative form.
Now, I'm not trying to moralize here because I'm known for engaging myself in risky and rewarding endeavors. But when I do, I understand what I'm getting myself into.
A good example is Electrameccanica Vehicles (NASDAQ: SOLO). Known for its flagship Solo, this EV got its name because it has three wheels and only the driver sits. The reason? Electrameccanica specializes in commuter vehicles, eliminating the waste of people driving family vehicles to commute to work.
One of the biggest challenges for me is the price of the solo. At $ 18,500, that could be too much for a single-purpose vehicle. Additional market research is best to determine whether such a business model is appropriate for your growth investment portfolio.
The electricity or the vehicle?
Going forward, one of the most important questions about how to invest in the growth of the EV market is this: Will the investment narrative focus on technology or sentiment?
For full disclosure, I have not driven an EV or hybrid so I am not personally familiar with the driving experience. Still, I've spoken to a lot of Tesla owners. And they swear once they're electric they'll never go analog. The reasons for this are the whisper-quiet ride and the various technical bells and whistles.
However, maybe they are in love with the Tesla brand or the novelty of the technology. But once this market is finalized, will drivers still marvel at Tesla's technical wizardry?
Or will they instead be interested in companies that offer a superior driving experience? This is one of the interesting narratives behind Spartan Energy Acquisition (NYSE: SPAQ), which is set to become Fisker through a reverse merger. Undoubtedly, SPAQ shares are risky. What attracts speculators, however, is legendary auto designer Henrik Fisker, who designed the company's gorgeous Ocean SUV.
In my opinion, Fisker is an automotive company that uses technology. In contrast, some of its competitors are arguably technology companies that build cars.
One side of this coin is likely to win, but which one? Again, targeted market research can give you an edge in your growth investment portfolio.
After all, you don't want to unnecessarily restrict your portfolio in one corner. As with anything, you should be open-minded. Life is much more interesting that way.
For example, Ferrari (NYSE: RACE) will likely never build an EV. Enrico Galliera, commercial manager of the dancing horse, had this to say on the subject:
We firmly believe that battery technology is not yet sufficiently developed to meet the needs of a supercar. We don't think the technology will meet the needs of a Ferrari in the next five years …
Once electrified technology is developed, we can produce a car that suits our position. Then why not? But the key is technology. We're not just going to build a Ferrari that's electric for it.
Lots of EV fans went to the blogosphere to beat up Ferrari as a former car company. But also keep in mind that the company's LaFerrari Exotic is the company's first hybrid vehicle. By hybrid we don't mean a Prius, of course. Instead, Ferrari uses EV battery technology to power its internal combustion engine.
Technically, however, this makes Ferrari an electric car as it takes advantage of the innovation. Perhaps not to the taste of EV buyers making the move to protect the environment, but still – Ferrari is open. Maybe you should too
At the time of publication, Josh Enomoto was long in F and SPAQ.
Josh Enomoto, former senior business analyst at Sony Electronics, has helped broker large business deals with Fortune Global 500 companies. Over the past several years, he has provided unique, critical insights for the investment markets as well as various other industries including law, construction management and healthcare.
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