3 Smart Options Trades to Capitalize on the Electric Vehicle Boom

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Demand for electric vehicles (EVs) remains price-sensitive, but there’s a notable improvement in potential demand retention — the percentage of respondents considering an EV at higher price points. That metric, along with the potential revenue pool (demand retention multiplied by adjusted price), has strengthened. In this piece, we look at solid EV options trades to ride the global EV adoption trend.

According to Citi (NYSE:C), 65% of current new vehicle owners considered buying an EV in 2023, up from 59% in 2022. There’s also an increase in EV consideration among leases and an even faster growth rate among cash or loan buyers.

Despite lagging behind other regions, the U.S. market shows potential for a rapid increase in EV demand. This potential is supported by the country’s high vehicle density — the highest globally — and the growing popularity of EVs, not just for their electric nature but also for advanced features like connectivity and over-the-air software updates.

Globally, Citi’s assessment predicts higher plug-in hybrid (PHEV) penetration in China, a slightly lower U.S. EV penetration through 2030, stronger EV adoption in Europe and a modest increase in EV penetration in China, Europe and the U.S. by 2025.

Rivian (RIVN)

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Rivian Automotive (NASDAQ:RIVN) is positioning itself as a formidable competitor to industry giants like Tesla (NASDAQ:TSLA), Ford (NYSE:F) and General Motors (NYSE:GM). The year 2023 ended positively for Rivian, particularly with the growing interest in electric pickup trucks, buoyed by the initial deliveries of Tesla’s Cybertruck.

However, the beginning of 2024 brought challenges, with RIVN shares experiencing a rapid decline amid weakening EV sentiment. Rivian is scheduled to announce its fourth-quarter and full-year earnings and revenue on February 21. Wall Street is predicting a loss of $1.34 per share, an improvement from the $1.73 per share loss in 2022. Expectations are also set for the Q4 revenue to reach $1.32 billion, potentially doubling its previous figures.

Back in December 2023, Baird recognized RIVN as a “best idea” for 2024, citing the company’s continued demand-supply constraints, which have lasted longer than many of its peers in the EV sector. Baird’s analysis suggested Rivian is poised for a strong performance in 2024.

“Production improvements, the use of inhouse developed components, and streamlining supply chain relationships are levers for margin upside, and we expect RIVN to flip to gross margin positive in Q424,” Baird analysts said in a note.

With its shares down 28% year-to-date (YTD), Rivian could rebound sharply as EV market sentiment improves. That is why investors should consider RIVN as one of the EV options trades for 2024.

The open interest for Rivian’s options has seen a slight increase of 0.9%, reaching 1.5 million contracts. That figure is notably higher than the 52-week average of 1.4 million contracts. The open interest percentile rank currently stands at 60%, indicating current open interest has exceeded 40% of the time over the past year.

Nio (NIO)

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Nio (NYSE:NIO) is another beaten-down EV stock, down 35.5% YTD. Shares have been trading lower in recent months amid concerns over potentially higher operating expenses, which could affect the company’s outlook.

The EV maker, facing intense competition in the market, may need to reduce prices on its existing models and increase marketing expenditures to successfully launch its second and third brands. That strategy is particularly pertinent for the introduction of the ET9, the newest addition to NIO’s product line.

The ET9, priced at $112,000, is a high-end sedan equipped with a 900-volt electrical system and capable of charging speeds up to 600kW. However, customers will have to wait for this model, as deliveries likely won’t begin until early 2025.

Despite these challenges, there are positive aspects for the company. Notably, there is an optimistic sales volume outlook for the end of this year and into 2025. Additionally, the company has secured a significant financial boost with a $2.2 billion investment from Abu Dhabi’s CYVN Holdings.

The improved liquidity situation is likely to mitigate investor concerns about the EV marker’s financial situation. Moreover, the Chinese government has pledged to support its embattled stock market, which may boost China-based companies listed overseas, like Nio.

Nio’s option open interest has risen by 1.7% to 2.2 million contracts, surpassing the 52-week average of 1.9 million contracts. The current percentile rank of open interest—a key metric when gauging the sentiment of open interest — at 84% — suggesting Nio’s open interest was higher only on 16% of the days in the past year. That indicates an unusually high demand for trading and holding options in Nio.

With the stock trading below $6, NIO could easily return to trade above $10 a share — levels last seen in September 2023. Recently reports show that traders are increasingly targeting Nio stock.

BYD (BYDDF)

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BYD (OTCMKTS:BYDDF) made headlines across the globe recently after the Asian EV maker surpassed Tesla to become the world’s largest electric car manufacturer in the last quarter of 2023. That achievement underscores the rapid growth and expanding influence of China’s EV sector.

According to a stock exchange filing, BYD set a record by selling 526,000 battery electric vehicles (BEVs) in the quarter ending on December 31, 2023. In comparison, Tesla, led by Elon Musk, delivered 484,500 vehicles in the same period, a record for the company.

Over the entire year, Tesla maintained its lead with 1.8 million electric car sales. BYD, however, was not far behind, with 1.57 million electric vehicles sold, marking a substantial 73% increase from 2022. Additionally, BYD sold 1.44 million hybrid vehicles.

Moreover, Tesla’s lead over BYD narrowed significantly in 2023, standing at about 230,000 units, compared to a 400,000 unit difference in 2022. For many, BYD’s success, backed by investor Warren Buffett, symbolizes the rapid advancement of China’s EV industry.

On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Shane Neagle is fascinated by the ways in which technology is poised to disrupt investing. He specializes in fundamental analysis and growth investing.

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