Stocks tied to the future of mobility have underperformed this year, but Baird thinks there’s upside coming for some of the subsector’s best names. The mobility subsector had fallen 2.5% since the start of the year prior to last week, despite the S & P 500 ‘s gain. That’s because the market has moved away from companies that haven’t made money from their offerings yet due to concerns related to the increased cost of capital and the health of the broader economy, Baird senior research analyst Ben Kallo said. Full tax credits related to electric vehicles may be difficult for automobile original equipment manufacturers in the near-term given the lack of production capacity for critical minerals and battery components, Kallo said. But he did note that these companies can use countries in a free trade agreement with the U.S. to reach the needed capacity. Emission requirements related to the Environmental Protection Act should also accelerate electric vehicle adoption, he said. The new rules should help increase market share to 60% by 2030, which is higher than President Joe Biden’s target of 50%. “We expect EV adoption to gain steam as the policy backdrop continues to be supportive of electrification,” Kallo said in a note to clients last week. With these tailwinds in mind, Kallo listed his favorite stocks in the sustainable mobility space heading into earnings. Here are three that made the list: Tesla: The favorite Kallo called electric vehicle maker Tesla his favorite pick in the sector. He said the company has already separated itself from the pack in the electric vehicle space. On top of that, he said Tesla has also reported “rapid growth” in its energy business, which he said can become a larger part of the company as Megapack manufacturing expands to meet the global demand for stationary storage. “TSLA’s leadership in scale, technology, manufacturing, cost, and depth of talent continue to differentiate it from competitors,” he said. “We believe TSLA is best positioned to weather economic headwinds which appear imminent for 2H23 and believe the long-term setup is strong.” Kallo noted the company’s price cuts and said the impact on margins has drawn criticism. But he said the company still has room to cut prices more, which could further pressure competitors. Any announcements related to next-generation vehicles can be positive catalysts. And he said an announcement of a home heat pump or other residential offerings as part of the energy business could be another differentiator for the company. With Baird’s coverage universe, Tesla has performed the best this year as of when the note came out. The stock has surged 50% this year, regaining ground after tumbling 65% in 2022. Kallo has an outperform rating with a price target of $252. If his target is met, that means the stock will rally 36.2% over the next year from Friday’s close. TSLA YTD mountain Tesla Rivian: The long-term play Competitor Rivian , meanwhile, is a smart long-term play, Kallo said. The analyst continues to watch the progress of construction of the company’s Georgia plant , which has received support from state legislators despite being tied up in legal battles. He said there’s still risk related to the plant’s construction and ramp-up timeline. But production starting in 2026 would help increase Rivian’s market share with its lower-priced offering called R2. “We expect noise in near-term results but think the long-term setup is strong,” Kallo said. Rivian said to expect positive gross margins in 2024, which Kallo said could be achieved through improvements at the facility and the increased use of higher-margin configurations. The company delivered more vehicles in the first quarter than expected. Kallo noted some believe the company could beat the expected full-year delivery estimate of 50,000, though deliveries will likely be choppy throughout the year due to factory downtime and uneven acceptances of vehicles from Amazon. On the other hand, he lowered his price target and estimates for 2024 deliveries to reflect a more conservative ramp-up. Kallo has an outperform rating on the stock but did lower the price target by $8 to $27. Still, his new target implies the stock could rally 101.8% in the next year over Friday’s close. That would mark a turn from the stock’s nosedive, with shares falling 82.2% in 2022 and another 24.5% this year. RIVN YTD mountain Rivian Wallbox: The non-vehicle pick Wallbox , which makes charging stations and technology, is another stock Kallo deems worth holding. He said margins should improve throughout the year as production increases and cost-saving measures start having their intended impacts. Kallo said the company differentiates itself from competitors by emphasizing home energy management and bidirectional charging. Kallo has an outperform rating on the stock and a target price of $11. His target reflects the potential for an upside of 240.6% from where the stock finished Friday’s session. Like Rivian, the stock has been beaten down over the past two years. Shares fell 78.1% in 2022 and shed 2.5% this year. That $11 price target would still be 32.6% lower than where the stock ended 2021. WBX YTD mountain Wallbox — CNBC’s Michael Bloom contributed to this report.
Baird’s three favorite plays on the future of energy and mobility going into earnings season
