One of the best-performing sectors in 2020 has been electric vehicle (EV) stocks. This is evident from the KraneShares Electric Vehicle and Future Mobility ETF’s (KARS) 90% gain from the March low.

While this sector has generated impressive gains for investors so far, I think there is one potential development that could potentially cause this rally to slow down – Republican polling in Senate races is improving.

Until October 3, PredictIt odds for the Democrats winning the Senate had consistently climbed higher. From August 29 to October 3, the odds for Democrats winning the Senate went from 49% to 70%. In recent weeks, polling for Republicans has improved and odds have dropped for Democrats to win control to 57%.


EV Subsidies

In contrast, former Vice-President Joe Biden’s odds have remained steady around 60%. From state polling, he also seems to have a large lead in many state polls which gives him multiple paths to victory. However, the fate of Biden’s energy plan which calls for $2 trillion in spending over the next four years also depends on Democrats winning the Senate.

The plan is very generous for EV companies. It calls for a cash-for-clunkers style program to offer incentives or rebates for people to replace gas-powered vehicles with EVs. In addition, there is a proposal to replace US government vehicles with American-made EVs. Another part of the plan is to build half a million EV charging stations across the country.

However, the chances of passage dramatically go down if Democrats don’t win the majority in the Senate or even end the night with only a slim margin, as some Democratic Senators like Montana’s Steve Daines or West Virginia’s Joe Manchin may not support such legislation.

Short-Term Election Risk

If this were to materialize, there could be a strong pullback for US-based EV companies like Tesla (TSLA), Plug Power (PLUG), and Workhorse Group (WKHS). Investors in these stocks should be aware of this election risk.

If investors want exposure to EV stocks without the election risk, they should consider Chinese EV companies like NIO (NIO), Xpeng (XPEV), and LI Auto (LI). These stocks have outperformed US-based EV stocks in recent weeks.

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NIO is rated a Strong Buy by the POWR Ratings. It has an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It’s ranked #3 out of 115 Chinese stocks.

Long-Term Bull Case

While a Reoublican majority in the Senate could have a short-term impact on the EV industry and push back the timeline for increased EV adoption, it doesn’t change some of the factors that make it an enticing long-term investment.

There’s been incredible progress in EV efficiency and range. Within the decade, we are expected to exceed the “crossover point”, at which it will be significantly cheaper to drive an EV rather than a gas-powered car. It’s expected that in 2030, 20% of car sales will be EVs which means 3.5 million EVs will be sold.

For investors who believe in the long-term potential of EV stocks but believe that there is too much froth and overvaluation, a correction could provide a low-risk entry point at more favorable valuations.

Tesla (TSLA)

Tesla is the leading EV company by several measures. This year, TSLA is expected to produce 500,000 cars. It’s increasing production by new opening factories in Germany and China to over 700,000 next year.

In the US, it has 80% market share of EV vehicle sales. Globally, it has 18% of the EV market, while Volkswagen is in second place with 12%.

Prices have also trended lower for its cars as increased production leads to lower unit costs. Given these factors, it would likely be a major beneficiary of Biden’s energy plan which would increase sales of EVs and lead to more charging infrastructure.

Therefore, a decisive win by Democrats being a positive catalyst for the stock and sector.  So, if Republicans retain control of the Senate, it’s likely that Tesla shares could break lower from its recent, two-month consolidation.

Many TSLA bulls would consider a correction to be a buying opportunity given its leading position in multiple categories with massive, potential markets – electric cars, electric trucks, batteries, autonomous driving, and autonomous taxis.

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Plug Power (PLUG)

PLUG has also been a big winner in 2020 with a 360% gain YTD. This relative strength continued until it topped in mid-October. Since then, the stock is down 22% from these multi year highs.

PLUG makes hydrogen-powered, zero-emission forklifts. This is a much smaller market than EVs – about $30 billion. It benefited from companies’ desire to go carbon-neutral, and it would likely see an acceleration in sales under a Biden administration.

In the last 7 years, PLUG’s revenues have increased from $24 million to $260 million over a trailing 12-month basis. Currently, PLUG has a market cap of $5.5 billion. This means the stock will have to maintain its current growth rate to justify this valuation.

PLUG bulls believe that its fuel cells will be able to be applied to other areas like power for data centers, trucks, and cars. Hydrogen fuel cells would offer more range than EVs with lithium-based batteries.

PLUG is one of the best ways for investors to get exposure to hydrogen as an alternative energy source. Between 2025 and 2030, fuel cell-powered vehicles are expected to reach the crossover point with gas-powered cars. They also have potential applications to fill in the gaps of power systems during disruptions. One problem with wind and solar is that at times production can be down so fuel cells can fill these gaps as well.

PLUG is in a similar situation to many EV stocks. The company is interesting and the long-term opportunity is huge but multiples are so high. Like TSLA, I believe the election could have a short-term impact on the stock price.

Workhorse Group (WKHS)

WKHS has been one of the best-performing stocks in 2020. From the March bottom to its mid-September peak, WKHS gained 2,265%. From this high, it’s dropped 46%.

This is what investors should be wary of – these types of deep corrections are possible in overvalued and/or overbought stocks due to some bad news, industry-wide issue, or a risk-off trading environment.

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WKHS is a very interesting company whose technology has the potential to win a piece of a big market – electric delivery trucks. These trucks would help environmentally and give cost-savings to companies. Under a Biden administration, it’s likely that there would be some sort of additional tax credit. And, the government would be buying EVs.

One reason for WKHS’s stock’s weakness in the last six weeks is that the company has yet to confirm a US Postal Service contract that could be worth up to $6 billion. This would obviously be a transformative event and would justify investors’ optimism that has led to this year’s massive gains.


Overall, EV stocks remain a very interesting and attractive place to invest, given the considerable long-term potential. A ‘blue wave’ as some are speculating would likely lead to a significant move higher in EV stocks.

However, if the Democrats fail to secure a strong-enough majority in the Senate, then I believe there could be a short-term, negative reaction in the US-based EV stocks.  If this were to happen, investors who believe in the long-term story of EV could have a great opportunity to add exposure at more favorable valuations.

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TSLA shares were trading at $414.95 per share on Thursday morning, up $8.93 (+2.20%). Year-to-date, TSLA has gained 395.96%, versus a 3.67% rise in the benchmark S&P 500 index during the same period.

About the Author: Jaimini Desai

Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. As a reporter, he covered the bond market, earnings, and economic data, publishing multiple times a day to readers all over the world. Learn more about Jaimini’s background, along with links to his most recent articles. More…

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