One of the hottest trends in the investing world in 2020 and now into 2021 has been electric vehicles, or as many refer to them as, EV.
Many of the companies currently in operation are unprofitable, burning cash at a pretty extensive rate, and are highly speculative plays. Due diligence must be extensive in order to manage the risk for ruin in the event of picking the wrong horse in the race per se.
Some investors are looking for EV stocks among Canadian stocks. Today we're going to look at a company that has a strong history of production, with over 390 vehicles on the road today and over 7 million miles driven, and that is Lion Electric (TSE:LEV).
We'll go over what the company does, current operations and possible future catalysts that could compound the company's overall growth rates.
So what exactly does Lion Electric (TSE:LEV) do?
Lion Electric is a manufacturer of zero-emission vehicles. It designs and manufactures products like all-electric buses, minibuses, and commercial trucks.
The company also designs, builds, and assembles battery packs, vehicle chassis, truck cabins, and bus bodies.
The company has a total of 7 vehicles available today, ranging from shuttle buses and school buses to general class 6 commercial vehicles. It offers these products to a wide range of major customers including Amazon, CN Rail, Transport Canada, Ikea, Molson Coors, and more.
Lion's experience and expanding product footprint will prove vital
Lion is one of the first-movers in terms of heavy duty electric vehicles, with over a decade of experience.
This combined with the fact the company already has 7 vehicles in production with another 8 set to be commercialized in 2021 and 2022, and we have a company that is in a strong position to become an industry leader in what I feel is an inevitable shift to electric based vehicles.
If we look to the company's plans in terms of new vehicle rollouts, we see interesting models like boom trucks, bucket trucks, utility trucks, and even ambulances.
The company also has one of the larger production footprints when we are speaking on small-cap EV companies, with a facility in Montreal capable of producing 2,500 vehicles per year, and one of the largest heavy-duty EV vehicle plants in the United States in Joliet Illinois.
The company has plans to open a large battery facility in the second half of 2022. The battery facility is backed heavily by a $100M investment from the Canadian and Quebec governments, with $30M of it expected to be forgiven if Lion can meet certain expectations.
Overall, there is some exciting projects in the pipeline for Lion, and it appears to be one of the faster growing EV companies here in Canada.
Growth estimates for Lion Electric should pique investors interests, but they also must be aware of valuations
With a company this young, profitability is likely a long ways away. In fact, out of the 5 analysts covering the company, none have even made predictions in terms of earnings.
However, when we look to revenue and EBITDA estimates, analysts are expecting explosive growth from Lion over the next few years, which has fueled its rich valuations, which we will get to in a bit.
In 2021, revenue is expected to come in at $152.37M and EBITDA losses of $3.03M. But when we look to 2022 and 2023, revenue estimates of $582M and $1.45B and EBITDA estimates of $74.6M and $224.79M respectively show why investors are willing to pay a hefty premium for the company now.
Now, estimates based multiple years from now have a high degree of speculation factored in. But, if Lion were to hit those 2023 revenue estimates, the company is trading at just over 2 times 2023 sales.
It is not uncommon for a high-growth company like this to be trading at a premium. There is a high amount of risk/reward baked into the company's share price right now, as if it is able to increase sales nearly tenfold over the next 3 years today's price will likely seem like a bargain.
However, if it fails to accomplish this, it's share price can end up plummeting. It's important to keep in mind that this is a $3.4B company that produced $6.2M in revenue in the first quarter of 2021.
Overall, this high risk/high reward growth play should be left for aggressive investors
In terms of promising EV plays, especially when it comes to the commercial sector, I view Lion Electric as one of the best.
However, that doesn't mean there isn't extensive risk with this company, and investors purchasing it today should be doing it with money that they wouldn't mind losing.
Investors wanting to see what risk these speculative stocks bring can look to the EV hype in the middle of 2020, as major companies like Nikola trading in the $66 USD range before plummeting to as little as $10.50 USD less than one year later.
However, the company is trading at a near 33% discount to its June peaks, and this is certainly a stronger opportunity when it comes to entering a position.
Lion Electric (TSE:LEV) price change since inception
If you're going to buy Lion Electric today, be prepared to face significant volatility. As much as a company like this could go on to double its share price over the next year, there is a possibility it could also be cut in half. If you have a quick trigger finger in terms of panic selling, Lion Electric will likely not be for you.
If you're purchasing this company now, it's best to have a long term mentality. I'm speaking half a decade or more, minimum.
Looking for more of a value play? These companies can be difficult to find in record setting markets, we looked at 2 potential value stocks in the Canadian market.