The Motley Fool

Top EV shares: 3 risks I need to be aware of before investing

Blue NIO sports car in Oslo showroom
Image source: Sam Robson, The Motley Fool UK

In recent months, electric vehicle (EV) stocks have become more and more popular. Tesla traditionally had been the go-to stock for investors to consider. Yet with the IPO of Rivian, as well as higher interest in companies like Lucid Motors and NIO, there are actually many choices for me to consider when buying top EV shares. The nature of the industry means that there could be high rewards, but also several risks that I need to look out for.

Pushing up valuations

The world is becoming increasingly conscious of the need to take more action to look after the planet. Insights from the recent COP26 summit tied in with many nations pledging more action in this regard. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

One element of this is a push towards EV instead of traditional diesel or petrol cars. I think ESG investors have led the charge into top EV shares over the course of this year. This has pushed up valuations and seen exceptional returns from holding these stocks in just a short space of time. However, this is the first risk I see.

The valuations of some of the best-known EV shares could sound alarms. Tesla is an example I’ll flag up. The business is doing very well, with a recent 100,000 order from Hertz, along with strong quarterly results. This pushed the share price above $1,000 last month. Yet with a market cap of over $1trn (compared to Toyota at $300bn), this does look expensive. It also has a P/E ratio of 355.

Tempering expectations

A second risk that leads on from the first is that I think some people might be getting ahead of themselves with regards to major EV shares. Both Lucid Group and Rivian only expect to start getting vehicles out for delivery between now and early next year.

I understand that all of the designs and testing have been completed, but the companies don’t have any track record of mass production. Yet the share prices for these stocks have been heading significantly higher in the past week. 

I think there’s a risk that the stocks don’t accurately reflect the business stage that these companies are currently at. As a result, these top EV shares could see a correction lower if the lofty expectations aren’t met during 2022.

High competition

The final risk I’d flag up is that this sector is going to see high competition going forward. These EV manufacturers are not the only ones in the game. As far as I’m aware, all other major car manufacturers have an electric vehicle out or are developing one. So in the years to come, consumers are going to have a lot of choice. This could dilute the market share of the specialist EV manufacturers.

I don’t want to seem that I’m completely pessimistic about the top EV shares. On the contrary, I’m actually considering buying Rivian shares. I think momentum is with this sector and I only expect the market to get bigger. At the same time, I do think it’s wise to be aware of the above risks so that I can make the most informed investment decisions.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.