Electric Vehicle Stocks and the Waymo Opportunity: Dynamics of the EV Market and How Future Tech Will Be Invested in？

TradingKey - The entire world is moving to make transportation more environmentally friendly and to offer independent travel options to almost everyone in an autonomous vehicle, resulting in a greater focus on investing in companies that manufacture electric vehicles and developing the technologies that will support both electric vehicles and autonomous driving. Electric vehicles have been a large part of the transition to clean energy. 

However, investment into electric vehicles is becoming more divided between traditional auto manufacturers that produce electric vehicles, and new age mobility companies such as autonomous ride services like Waymo. Consequently, we see two parallel trends; investment in established electric vehicle manufacturers being attractive from a short-term investment perspective, while new-age mobility businesses offer longer-term investment opportunities from autonomous ride-hailing services.

EV Industry Prospects: From Batteries to All-Out Mobility

The electric vehicle (EV) industry is among the most popular segments of the automotive marketplace. The increasing focus on decarbonization, regulatory directives, and shifting consumer habits have been key factors in creating the global demand for EVs. Some of the dominant publicly-traded stocks include legacy innovators such as Tesla (TSLA), as well as companies from around the world that are generating significant competition to Tesla, including the Chinese manufacturer BYD, which will surpass Tesla in total annual deliverable units sometime in 2026. BYD's impressive earnings and sales across both plug-in hybrids (PHEVs) and battery electric vehicles (BEVs) (e.g., BYD T3 and EB-NR series) strongly illustrate the competitiveness in this growing sector.

Investors are showing interest in a variety of EV-related stocks based on a belief that electrification will establish further market share of global auto sales through this decade. Companies like Nio (NIO), Rivian Automotive (RIVN), General Motors (GM), and Li Auto (LI), and many more, are providing unique offerings aligned with this industry transition, including premium SUVs, extended range technologies, and commercial solutions.

Investments in more powerful battery electric vehicles, advanced batteries, and software-driven technologies to enhance the driving range, charging speeds, and overall experience of using electric vehicles are being made by both existing and new competitors. Even though some older vehicle tax credits are no longer available in the United States, there is a huge amount of interest from consumers who want to buy an electric vehicle in the next few years, as evidenced by survey results indicating that many potential buyers are planning to buy an electric vehicle as their next purchase.

Waymo: The Next Frontier of Autonomous Mobility is Investment

The increase in fully commercialized autonomous-vehicle technologies being developed by Waymo (a subsidiary of Alphabet), has made Waymo an industry leader, making it more than just a player in this space; Waymo is leading the way in fully autonomous ride hailing and is viewed as the clear leader in commercialization of Robotaxi services. Waymo has launched its fully autonomous (driverless) services in many U.S. cities, and recently expanded into Nashville, resulting in a further increase to its operational footprint.

Currently, Waymo has hundreds of thousands of weekly rides with significant growth potential, making its long-term vision go far beyond vehicle ownership: Waymo views the potential of Robotaxi services to provide a scalable, electric mode of transportation that can redefine urban transportation economics. As Waymo's growth and funding has increased, primarily from recent rounds of financing with significant increases in valuation for Waymo, speculation has continued to circulate regarding a possible Waymo IPO.

Currently, Waymo is not a public company — it is privately held (a subsidiary of Alphabet), which means most retail investors do not have any direct exposure to Waymo unless they invest in secondary markets or through some type of potential public offering vehicle. The only way most retail investors will gain any exposure to Waymo is by investing in the public equity of Alphabet, which should serve as a reasonable public proxy for capturing any future upside of Waymo.

EV Stocks & Autonomous Technologies: 2 Separate Themes

The narratives surrounding EV (Electric Vehicle) stocks and autonomous transportation represent two different but complementary investment opportunities. Electric Vehicle (EV) stocks are indicative of a physical (hardware) transition in personal & commercial transportation where scale, cost efficiencies, and consumer uptake define the industry’s winners/losers (e.g. EV makers such as Tesla, BYD and other larger companies). For instance, there are differences in the way a cost-effective volume of EV’s can be manufactured relative to projected growth rates (notably large makers) and production execution will largely define valuations in this segment.

Conversely, autonomous transportation companies such as Waymo are focused on driving revenue (monetization models) through the provision of software as opposed to the sale of individual vehicles. In addition to leveraging an EV platform for autonomous robotaxi services (i.e. Waymo), Waymo is driving new sources of revenue through recurring ride revenues as well as the ability to gain a competitive advantage in data by deploying more vehicles across a larger number of urban areas vs. other players’ ongoing operational testing in urban areas.

In closing, these two themes are increasingly converging. Specifically, we are beginning to see the capability of EV vehicles to provide advanced driver assistance systems (ADAS) and autonomous driving capability being packaged together within the evolving portfolio(s) of many large original equipment manufacturers (OEMs). As a result, there will be ample investment opportunities for EV investors to gain diverse exposure to both hardware manufacturers (e.g., EV OEMs) and software-oriented mobility innovators (e.g., companies developing ADAS and autonomous driving technologies).

Risks and Divergent Views

When investing in electric vehicle (EV) companies, investors face a significant amount of risk related to execution due to supply chain issues, competitive pricing pressure, and an ever-changing consumer demand environment. In addition, there are many macroeconomic factors that can influence the pace of EV adoption (such as the timing of charging station infrastructure systems and government incentives), which only add more risk to an already risky investment opportunity.

Furthermore, most of the EV companies still are not generating any profits or are at early stages of scale compared to their traditional automotive counterparts, which creates more risk for EV investors.

As for AV (autonomous vehicle) companies, such as Waymo, they will carry an even larger risk profile compared to most EV companies due to their complicated business models and lack of proven path to profitability. A lot of uncertainty exists around whether the large amount of capital required to build AVs and the regulatory barriers to deployment will be accepted by the public. As a result, it is difficult to predict the future return on investment (ROI) for these types of companies.

EV stocks represent the more manageable investment opportunity on the near horizon in terms of revenue, while AV companies represent a longer-term investment that has the potential to completely change the way people travel. The risk associated with an EV stock can coexist with the AV opportunity in a diversified portfolio, but each investment will require differing levels of risk tolerance and commitment to time frame.

Market and Investment Perspectives on EVs

As an investor interested in EV stocks, you will want to take a diversified approach across established and also relatively new EV manufacturers. This means that you will have exposure to bigger names in the industry such as Tesla and BYD, while at the same time being in a few growth-oriented names such as Rivian or Li Auto, therefore providing both innovation and market breadth.

With respect to autonomous driving technology developments, investors can also follow performance updates at Waymo toward a possible IPO, along with the potential to own Alphabet's stock indirectly, creating a long-term thematic investment in mobility services beyond just the ownership of individual vehicles. Any investor willing to invest in advanced technologies in mobility will do well to keep track of regulatory developments, as well as the milestones of funding and adoption, as these serve as indicators of the maturity level of the sector.

In general, stocks of EV companies will serve as an anchor point for the near-term transition to more sustainable forms of transportation, while the mobility plays represented by companies like Waymo will showcase the next level of how we use and monetize the vehicle. A well-considered balance between these two themes represents the ever-evolving token of automotive-related innovations and investment opportunities.