Ask our experts – 3 electric vehicle shares to watch in 2023

Electric vehicles (EVs) are increasingly popular. Lots of people believe they’re the future. If that’s the case, it’s worth considering the companies fuelling the EV revolution. This is an area the market’s currently excited by, but that doesn’t mean all companies in the EV world are created equal. Like with all sectors, there are opportunities and risks to consider.

Investing in individual companies isn't right for everyone. They’re higher risk, and your investment depends on the fate of that company. If that company fails, you risk losing your whole investment. If you can’t afford to lose your investment, investing in a single company might not be right for you. You should make sure you understand the companies you're investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.

Continental

Germany’s Continental isn’t a pure EV maker, but it’s making waves as a supplier to the EV industry. It covers all sorts of areas to do with the vehicle supply chain, including tyres, technology and technical rubber and plastic products.

Traditional car manufacturers use Continental’s technologies for their own EV models. Whether that’s helping with software and battery cooling systems for an electric Volkswagen or new-fangled cockpit computers for the BMW iX, Continental has a hand in getting electric cars on the road.

Continental has also recently partnered with a California-based AI chip company to boost its soft and hardware systems for assisted driving. This will include tech to help with things like assisted cruise control and lane centring.

These make up a relatively small part of the overall picture for now – Continental is a giant in size with annual revenues of around EUR40bn. Operating profit’s expected to grow at double digits over the next couple of years.

Continental has a lot going for it currently. One of the biggest things to keep an eye on though is its debt levels. At EUR5.0bn, this is higher than we’d like, and we’d prefer to see that figure come down. There’s also a prospective yield of 3.4% on offer – though yields are variable, not a reliable income of future income and no shareholder returns, including dividends, are ever guaranteed.

The group’s also exposed to the traditional car market more than a pure EV manufacturer. This industry is cyclical, which means ups and downs are part and parcel of the investment case.

See the latest Continental share price and how to deal

NIO

NIO is a Chinese premium electric car maker. What sets it apart from the other famous electric car makers you might be thinking of is NIO’s focus on battery technology.

It’s renowned for its swappable batteries. This means your car can be fully charged in an instant. How much this really improves the driving experience is dependent on the roll out of expensive ‘swapping station’ infrastructure. The cars are sleek and so are NIO’s other products, but how do the financials stack up?

NIO is heavily loss making. Operating losses are expected to come in at $14.7bn in the current financial year. That’s partly because of a mushrooming research and development (R&D) budget. High R&D spending is part and parcel of a young company like this, but we need proof this budget can be tightly managed before getting too excited.

The group’s also been caught up in news that Tesla reduced its prices to remain competitive in the current tough economic environment. NIO is a premium name, so this movement has the potential to cause ups and downs in the short term.

Because of how these shares are listed, if you want to buy them, you’ll need to complete and return a US government W-8BEN form.

See the latest NIO share price and how to deal

Volvo

You might have recognised Volvo from our Five Shares to Watch for 2023. We’ve admired Volvo’s high barriers to entry, more reliable nature of its revenue streams and free cash flow. This isn’t a car company – that was sold years ago – this Volvo is a truck and large vehicle specialist. Those strengths are all well and good, but what about the future?

That’s where Volvo’s electrification strategy comes in. It’s leading the charge in making electric heavy-duty equipment, like HGVs, and machines.

Series production of 44-tonne electric Volvo trucks started last year and electric bus demand is increasing. It’s reasonable to expect the change away from traditional engines is happening more slowly than for cars, but it’s still happening. Volvo’s electric trucks have over 50% market share in Europe and North America.

Saying that, there are risks to consider and no shareholder returns are guaranteed. Volvo is facing supply chain issues and cost inflation. That’s keeping a lid on profit growth and could limit upside in the short term.

See the latest Volvo share price and how to deal

Overseas dividends can be subject to withholding tax which might not be reclaimable.

Our last ‘ask our experts’ article took a closer look at 3 AIM stocks to watch. To make sure you don’t miss any of these future articles, sign up to our weekly Share Insight email below.

This article isn’t personal advice. If you’re not sure if an investment is right for you seek advice. Investments and any income they produce can fall as well as rise in value so you could get back less than you invest. Past performance isn’t a guide to the future.

Unless otherwise stated, estimates are a consensus of analyst forecasts provided by Refinitiv. These estimates aren’t a reliable indicator of future performance. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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