When investors think of game-changing electric vehicle (EV) stocks, Tesla (TSLA +2.96%) might come to mind. But there are many other ways to gain exposure to the growth of EV adoption.
Freeport-McMoRan (FCX +2.83%) benefits from a growing EV industry through a boost in copper demand, and Albemarle (ALB 8.29%) produces lithium, a key component in batteries.
Here's why these three Motley Fool contributors think Tesla, Freeport-McMoRan, and Albemarle are three completely different ways to gain ultra-long-term exposure to the EV industry.
Image source: Getty Images.
This EV winner is hiding in plain sight.
Daniel Foelber (Tesla): Tesla stock has been the single best-performing component in the S&P 500 so far this year. But that comes after it was one of the worst S&P 500 performers in 2022.
The stock's dramatic ups and downs make it wildly inconsistent. But this is a direct contrast to Tesla the company, which has been as consistent as they come over the last five years.
The following table shows Tesla's key metrics since 2018. The company's performance has been exceptional.
|
2022 |
2021 |
2020 |
2019 |
2018 | |
|---|---|---|---|---|---|
|
Production (units) |
1,369,611 |
930,422 |
509,737 |
365,232 |
254,530 |
|
Deliveries (units) |
1,313,851 |
936,222 |
499,647 |
367,656 |
245,506 |
|
Revenue |
$81.46 billion |
$53.82 billion |
$31.54 billion |
$24.58 billion |
$21.46 billion |
|
Net income (loss) |
$12.58 billion |
$5.52 billion |
$721 million |
($862 million) |
($976 million) |
|
Operating margin |
16.98% |
12.07% |
6.32% |
0.33% |
(1.18%) |
|
Free cash flow (negative) |
$7.55 billion |
$3.48 billion |
$2.7 billion |
$968 million |
($221 million) |
Data sources: Tesla, YCharts.
Tesla can't control how investors trade its stock, macroeconomic conditions, or global demand. But it continues to sustain high margins and take market share while setting the stage for decades of growth.
As the competition scrambles to catch up, Tesla finds itself in the catbird seat with an unrivaled global manufacturing, distribution, and charging network. Its vertical integration and command of the EV value chain are similar to Apple's product and service line across multiple consumer electronic categories.
For a brief moment before its recent run-up, Tesla stock had a price-to-earnings ratio similar to low-growth consumer staples stalwarts like Coca-Cola or Procter & Gamble. It was far easier to pound the buy button when Tesla was that cheap. But even now, it is far less expensive and far more established than in years past.
For most investors, the best way to approach Tesla is probably to buy it and forget about it, or simply ignore it if you're uncomfortable with the volatility. The stock could continue to do crazy things.
But as long as Tesla stays on track to grow production at a 50% compound annual rate while maintaining an excellent balance sheet and high margins, it should continue to be a solid long-term investment.
NASDAQ: TSLA
Key Data Points
Freeport-McMoran is a backdoor way to play the EV boom
Lee Samaha (Freeport-McMoRan): According to an S&P Global Report entitled "The Future of Copper," demand for the metal will grow from 25 million metric tons today to 50 million metric tons by 2035. The report says that the demand increase will likely be driven by the fact that technologies associated with the energy transition "require much more copper than conventional fossil-based counterparts."
One of them is the transition from internal combustion engines (ICE) to electric vehicles -- or properly put, hybrid electric vehicles (HEV), battery electric vehicles (BEV), and fuel-cell electric vehicles (FCEV). For example, the report says a typical BEV requires 2 1/2 times the amount of copper needed in a typical ICE car, not least in internal wiring, batteries, and motors.
As such, the EV transition will significantly contribute to the marginal shift in copper demand alongside other emerging technologies such as solar power, wind power, industrial automation, and the general trend toward electrification in the economy. Meanwhile, the same environmental awareness driving the EV transition is also making it harder for miners to acquire permits for new mines or to expand existing ones.
If this translates into an uptrend in the price of copper, then Freeport-McMoRan, with its major projects in Indonesia and the U.S., is set to be a significant beneficiary.
NYSE: FCX
Key Data Points
Power your portfolio with Albemarle
Scott Levine (Albemarle): Barring major disruptions in battery technology, investors can expect lithium to play a crucial role in the burgeoning EV landscape for years and years. Even many cutting-edge technologies like solid-state batteries incorporate lithium in their designs.
Consequently, Albemarle, a leader in lithium production, represents a compelling option for investors looking to travel the road of EV investment.
While some lithium companies have limited assets in their portfolios, Albemarle owns and operates a variety of properties on several continents -- resources that provide an opportunity for the company to continue producing lithium for years to come.
And the numerous assets are advantageous in that they mitigate the risk of complications (operational, political, or otherwise) arising at an individual mine.
Although Albemarle is among the global leaders for lithium production, the company shows little indication of resting on its laurels. In a recent investor presentation, the company stated its position that "Growth remains the primary capital allocation priority."
A look at the company's recent acquisitions substantiates this. In October, for example, Albemarle announced it had completed the $200 million acquisition of Guangxi Tianyuan New Energy Materials Co., a producer of battery-grade lithium carbonate and lithium hydroxide.
The company projects that it will generate free cash flow of about $700 million in 2022, growing to about $2.65 billion in 2027. Should it achieve this forecast and bolster its balance sheet, it will be in a strong position to seek additional lithium production acquisitions without having to rely heavily on issuing debt. The growth in its portfolio, consequently, could help ensure that the company retains its position as a global leader in lithium production.
