Play the EV Winter Now to Profit When it Thaws

Stocks to buy

Not long ago, the electric vehicle (EV) industry was the hottest segment of the U.S. economy. Now it increasingly appears the industry could be entering a long winter. And investors want nothing to do with EV stocks

Over the past three months, Tesla (TSLA) stock has dropped around 16%. And in fact, it has essentially gone nowhere over the past three years. Rivian (RIVN) is also down 16% over the past three months. Lucid (LCID) has shed nearly 45%, and Fisker (FSR) has lost more than 85%. Both have slid to all-time lows. 

It’s a bloodbath out there. 

And the bad news is that this EV Winter is far from over. Dozens of EV startups will go bankrupt, which means many EV stocks will go to zero. 

Poorly positioned investors will likely lose everything. 

But here’s the good news: This EV Winter will end. And when it does, the EV stocks that survive will absolutely soar. 

And well-positioned investors could stand to make fortunes. 

Why EV Stocks Are Freezing Cold This Winter

So, what’s going on for this once-hot sector? 

Every new technological revolution goes through the same three steps: invention, consolidation, then boom. 

When a new technology is first introduced, everyone gets really excited about it. There is a premature euphoria about that technology’s potential applications. 

Then, a sobering reality sets in. New technology will not change the world overnight – it will take time. Consumers and investors alike cool on the industry. The market stalls. Dozens of startups in that tech industry go bankrupt. And the whole industry consolidates around a few solid names. 

Once that happens, the technology starts to live up to its early promise and starts to change the world. Consumers and investors jump back on the bandwagon. And the tech firms that survived the sector’s consolidation become industry titans. 

This is exactly what happened when the automobile was first introduced to the world. 

Looking Back to the Gas-Powered Auto Boom

In 1893, bicycle mechanics (and brothers) J. Frank and Charles Duryea of Springfield, Massachusetts, designed the first successful American gasoline automobile. An automotive gold rush ensued.

A decade later, some 485 companies entered the automobile manufacturing business. All were hoping to strike it rich as the gas-powered car redefined the world of transportation.

It was a “gas-powered car boom” – much like the “electric vehicle boom” of today.

What happened next?

Well, the gas-powered car did go on to redefine the world. Today, around 70 million new passenger cars are sold every single year.

But almost none of those 485 companies that popped up back in the early 1900s became a success story.

Less than 50 were still in operation by 1930. And just three accounted for 80% of the market.

But then, the automotive industry entered its “boom.” Throughout the 1900s, the market grew like crazy. And the auto makers that survived the consolidation have become titans of the modern economy. 

I’m talking about companies like Toyota (TM), Ford (F) and General Motors (GM) – multi-billion-dollar centerpieces of the global economy. 

So, the investment takeaway here? When it comes to technological revolutions, invest in the next generation of winners during the consolidation phase – when the industry is whittled down from hundreds of hopeful startups to a handful of future titans. 

That’s exactly where we are with the EV industry today. 

The EV Industry Has Screeched to a Halt

Due to a confluence of headwinds ranging from high financing rates to flailing consumer interest, U.S. EV sales have slowed dramatically.

In 2021, the EV market grew by nearly 90%. In 2022, it grew by 65%. 

But in the final three months of 2023, the EV market in the U.S. grew by just 40%. 

Sure, that is still 40% growth – but it’s much lower than 65%. 

The EV market is slowing. 

Perhaps more importantly, EVs have stopped gobbling up market share from traditional autos. From mid-2021 to mid-2023, EV sales penetration soared from 3% to 8%. But over the past six months, EV sales penetration has plateaued around 8% of total auto sales in the U.S. 

No matter which way you slice it, the EV market is slowing. 

This is the consolidation phase of the EV industry. 

Over the next 12 months, the industry will keep struggling. Dozens of EV startups will file for bankruptcy. Many EV stocks will head to zero. And some investors are likely to lose everything. 

It will get rough for the industry in 2024. 

But some EV firms will survive. And those that do stand to make fortunes once this winter ends, likely in 2025. 

That means that the best time to buy the right EV stocks is now, while they’re on sale – and before they rebound with vigor after the EV Winter ends. 

The Final Word on EV Stocks

So, which EV stocks are some of the best to buy during this consolidation period? 

Tesla, of course, is the best positioned to survive the EV Winter. It’s still selling a ton of cars. And while it is cutting prices, those price-cuts should allow the firm to protect its dominant market share for many years to come. 

Rivian is another that looks strongly positioned to survive this EV Winter. The company has huge financial backing, and it’s firing on all cylinders with its manufacturing ramp. Plus, it seems like Rivian’s cars are popping up everywhere, and customers love its vehicles. 

QuantumScape (QS) is another top contender here. The company is developing next-gen solid-state batteries that could transform the whole industry. And it just reported some breakthrough data that suggests that its batteries are close to viable for actual cars. 

As for other stocks in the EV space, they are probably best avoided.

Mass industry consolidations are tough to see in real-time. But they are necessary. And they lay the foundation for the next generation of industry winners. 

So, don’t be afraid of this EV Winter. Embrace it. 

And use it to put yourself in the right stocks at the right time.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.

P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.

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