When we talk about electric vehicles (EVs) and their place in the auto market, it’s all too easy to focus on their drawbacks, on the reasons why the internal combustion engine isn’t going away. It would do us good to remember that the same thing was said of the horse and carriage more than a century ago – and here we are.
EV technology isn’t new. The difference now is one of degree; the technology has improved so that EVs can match the performance of gasoline-powered vehicles, and there is an increased political will to push electric vehicles over the alternatives. These basic facts are supporting the sector as we head into 2022.
Wedbush’s technology expert Daniel Ives has taken a deep dive into the EV market, with a particular emphasis on its prospects. Ives writes, “In our opinion, with auto stalwarts such as GM, Ford, and VW now laser focused on the EV revolution, we will see an unprecedented conversion to EVs as more consumers are attracted to the innovative designs, improved battery technology, lower price points, and environmental backdrop of buying an EV. To this point, while EVs represent only 3% of autos globally today we believe by the end of 2022 that over 5% of vehicles will be EVs and 10% by 2025."
A segment expansion of that magnitude cannot be filled solely by the giant legacy companies. They are being followed by scores of innovative companies that are bringing new designs and new ideas to the EV universe. We’ve used the TipRanks database to pull up the details on two such stocks. Both earn Moderate or Strong Buy consensus ratings from the analyst community, and boast double-digit upside potential. Let's take a closer look.
We’ll start with Canoo, a California-based EV designer and manufacturer. Canoo is working on an EV design with a distinctly non-traditional approach, creating a multi-purpose EV platform with capacity to be built up into a wide range of finished vehicles. Designs include a pickup truck and a delivery van, along with the flagship ‘lifestyle’ vehicle.
Canoo’s vehicle chassis, the base for all of its models, features independent electric motors on each wheel and an electrically powered ‘drive-by-wire’ steering system. The dashboard is streamlined to allow an improved forward field of vision, and the steering column can shift between the vehicle’s left and right sides. The vehicle – all models – will include wireless connectivity and compatibility with smartphone apps, permitting the driver to monitor vehicle systems from most standard smartphones and tablets.
The Canoo vehicle has prototypes on the road, but is not yet in regular production. The company is aiming to begin such production in the US before 4Q22. Canoo has chosen Fayetteville, Arkansas as the location of its US headquarters, and is developing both manufacturing and R&D facilities in Arkansas and Oklahoma. At the end of 3Q21, the company reported having $414.9 million in liquid assets, and had used $280.7 million in operating and investment activities in the first 9 months of 2021. The company does not yet have a revenue stream.
Analyst Craig Irwin, looking at this stock for Roth Capital, sees the current testing vehicles as the key to Canoo’s success next year, writing: “We expect evidence of the success with gamma vehicle testing to yield material trading catalysts, and these units should start rolling in early 2022. The gamma units delivered to ADAS partners will be of particular interest, as these can show the early benefits of the Canoo technology architecture that has been designed for forward compatibility.”
Irwin gives the stock a Buy rating, and his $14 price target implies a 12-month upside potential of 73%. Irwin's forecast reflects "rapidly improving visibility, where the early customer response to the Canoo Lifestyle Vehicle suggests management could still be conservative in its 2022 outlook."
Sono Group (SEV)
The second stock we’ll look at, like Canoo above, is a highly speculative EV designer and maker still in the pre-production phases. Sono, based in Germany, is working on a solar-powered EV for the mass markets. The vehicle, called the Sion, aims to resolve drivers’ anxiety over range. Most EVs need to recharge after some 250 miles, significantly less than the typical 400 mile range of a gasoline powered car. By operating on a combination of solar and battery power, Sono is developing the Sion to solve this issue.
The company has put together a solar panel system for vehicle use. The technology is based on 248 separate cells integrated together into a flexible photovoltaic panel. It’s estimated that the panel can add 70 miles to a car’s battery each week. It’s important to note, however, that this will still result in a car with much less range than a gas engine. The Sion will have less than 300 miles range, between the battery and solar panels together.
The solar panel is a proprietary technology, and Sono is looking to capitalize on it beyond its initial use as a supplemental power source for EVs. There are plans for Sono to license the panel system to other EV makers, a move that will open up additional revenue streams.
While not in production yet, Sono’s design has picked up a following. The company reports having more than 16,000 advance orders for the vehicle, which is only scheduled to reach regular production in 2023. To raise capital as it moves forward and prepares for regular production, Sono held its IPO earlier this year. The SEV ticker started trading on the NASDAQ on November 17, with 10 million shares made available. Initial pricing was $15 per share, and the stock closed its first day above $38. The company raised over $172 million in the IPO.
Since then, however, Sono’s stock has fallen 71%. Yet, at least one analyst sees the current low share price as a chance to buy in.
Berenberg analyst Mike Filatov gives SEV shares a Buy rating, and sets a $21 price target that indicates room for an impressive 109% upside potential.
“We believe the most exciting aspect is Sono Solar, which will sell and license a solar solution to other OEMs and fleet owners across industries to potentially reduce total cost of ownership and boost ESG credentials. At 0.7x 2024E sales (vs. ~2.0x peer average) we find Sono’s upside potential compelling,” Filatov opined.
Regarding Sono’s car, Filatov is sanguine about the prospects. He says of the Sion, “We believe its low cost, highly competitive range, and ESG-friendly mission will help to drive sales of ~43k vehicles per year…” Sales on this scale should lead to 1.2 billion Euros in revenue.
Sono has slipped under most analysts’ radar; the stock’s Moderate Buy consensus is based on just two recent ratings. With shares trading at $10.05, the $22 average price target suggests room for ~119% upside.