Dennis Hammer is a writer and finance nerd with six years of investing experience. He writes about personal finance for Wealthsimple. Dennis also manages his own investment portfolio and has funded several businesses in the past. Dennis holds a Bachelor's degree from the University of Connecticut.
Tesla isn’t the only player in electric vehicles (EV) anymore. A mix of new and legacy companies are hoping to grab a piece of the rapidly expanding market. In this article, we’ll discuss why investors like EV stocks, which companies have public offerings, and how to get in the game. But first, it helps to understand how an IPO works.Get started with Wealthsimple Trade. Sign up today and start building your portfolio.
What is an IPO?
An IPO is the first instance of a private company selling its shares to outside investors on a stock exchange. It’s referred to as “going public.” Public investors can now purchase those shares. This means the company no longer controls who owns the stock.
Companies go public because it’s an effective way to raise money quickly. It also allows early stockholders (like equity-holding employees and venture capitalists) to see a return on their investment.
The cash influx from selling stock publicly can be used for anything: launching new products, improving operations, paying off debt, etc. In exchange, traders get to own a piece of the company that will hopefully rise in value.
Going public changes the way companies behave. They become beholden to a host of regulations, including financial reporting requirements. Shareholders gain powers, as well, such as the ability to vote on certain issues.
Investors like IPOs because it gives them a chance to invest in attractive companies that are growing well. That said, an IPO is rarely the way to make a quick buck as many trendy companies lose value on their first trading day. For example, Facebook’s stock price fell just after the IPO and took nearly a year to recover.
Why are people investing in EV stocks?
EV stocks are among the hottest segments of the stock market because the demand for electric vehicles is growing. This is especially true for younger generations. Almost 3 out of 4 younger buyers say they’re willing to pay higher prices to own an electric vehicle.
So why do people want to buy electric vehicles?
EV sales are climbing faster than traditional car sales. According to the International Energy Agency, 4.79 million electric vehicles were sold in 2019, up from 3.27 million in 2018. That seems like a lot, but since only 2.6% of sales were EV, there’s still a lot of room to grow.
Gasoline is expensive. Rising petrol prices are a big motivator for EV buyers. Electricity is about a third of the price.
Battery costs are falling. The battery is the most expensive component of an electric vehicle, but even this cost is falling as manufacturers develop higher capacity batteries that last longer.
The range issue is fading away. The first EVs could barely break 100 miles. Now there are plenty of options that can cover 300 miles on a single battery charge.
Electricity is easy to find. While there are more gas stations than charging stations, there’s access to electricity at every home or building.
EVs are more expensive upfront, but cheaper to maintain. They simply have fewer parts.
Performance isn’t so bad. Electric motors create more torque than internal combustion engines, which makes them faster accelerators and decent at towing.
While there are several trendy, high profile EV makers that have either gone public or are about to go public soon, investors love that nearly every major legacy automaker is pushing into the EV market. Companies like Ford, Volkswagen, and General Motors are releasing electric versions of their popular models or entirely new EV models.
Furthermore, non-auto makers are all-in on EVs as well, further boosting investor confidence. Amazon has agreed to purchase 100,000 electric vans from Rivian, the United States Postal Service recently signed a 10-year, multi-billion-dollar contract for thousands of electric mail trucks, and United Airlines just spent $1 billion on a fleet of electric air taxis with EV manufacturer Archer. The U.S. President Biden has announced plans to transition all government fleet vehicles to EVs.
Which EV companies have public offerings?
The EV boom isn’t limited to car manufacturers anymore. We’re seeing the emergence of an entire transportation ecosystem. Here is a collection of public EV companies:
Tesla (NASDAQ: TSLA) - Consumer cars and battery tech
NIO Limited (NYSE: NIO) - Consumer cars
General Motors (NYSE: GM) - Consumer cars and battery tech
Ford (NYSE: F) - Consumer cars, cargo vans, and trucks
Blink Charging (NASDAQ: BLNK) - Electric charging infrastructure
Facedrive (TSXV:FD, OTC:FDVRF) - EV ridesharing, food delivery, and subscriptions
Toyota (NYSE:TM) - Consumer cars
Magna International (TSX:MG) - EV battery tech
Lordstown Motors Corp. (NASDAQ: RIDE) - Light-duty fleet EVs
Canoo Inc. (NASDAQ: GOEV) - Consumer and commercial EVs
Geely Automobile Holdings Limited (OTCMKTS: GELYF) - Consumer cars, as well as vehicle design, tech consulting, and storage services
Fisker Inc. (NYSE: FSR) - Consumer cars
Lucid Motors (NYSE: CCIV) - Consumer cars and energy storage
ChargePoint Holdings (NYSE: CHPT) - EV charging networks
Aptiv PLC (NYSE: APTV) - EV components
How can I buy EV stocks?
Purchasing shares of EV companies is like buying any other stock. Follow these four steps:
Step 1: Open a trading account with a brokerage.
In order to trade stocks, you must open an account with a brokerage. A broker is a financial institution that gives retail investors like you the opportunity to buy and sell stocks and other financial products. Once you open an account, you’ll need to deposit funds to be used for trades (though this is usually part of the brokerage’s onboarding).
Step 2: Determine which EV companies to buy.
Your next step is to decide which companies you want to own. This is a personal decision you’ll need to make based on your own research.
If you aren’t sure, consider purchasing an electric vehicle ETF, such as Global X Autonomous & Electric Vehicles ETF (DRIV) or KraneShares Electric Vehicles & Future Mobility ETF (KARS). ETFs expose you to the market while diversifying your portfolio.
Step 3: Determine how many shares to buy.
Before executing the trade, you’ll need to decide how many shares you want to own. This is a simple equation: Divide the amount you want to invest by the price of each share. For example, if you’re willing to invest $2,000 and your chosen stock costs $25 per share, you can afford to buy 200 shares. ($5,000 / $25 = 200).
Like all securities, purchasing EV shares comes with some risk. Never invest more money than you can afford to lose. We recommend diversifying your portfolio with different kinds of securities to reduce the risk of losing everything.
Step 4: Execute the trade
Your final step is to execute the trade via your broker’s trading process. You can choose to execute a market order, which buys at the current price when the order reaches the exchange. This method is fast, but you don’t control the final purchase price. You can also choose a limit order, which is an order to buy or sell a security at a specific price. This method might take some time to execute, but you have complete control over the price. Your broker will deduct the funds from your account and deposit the shares.
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