Investing in companies that manufacture EVs is perhaps the most obvious way to profit from the EV theme, but success may not be as straightforward as you think.

We’ve already mentioned Tesla and BYD, two well-established players in the EV market (in BYD’s case mainly in its home country of China) facing ever-stiffer competition from hitherto traditional automakers like Volkswagen, Hyundai, BMW, and the Renault–Nissan–Mitsubishi Alliance.

While Tesla remains the biggest-selling EV brand – and continues to hog investors’ attention – the old-school auto behemoths’ impressive manufacturing capacity may soon see them producing EVs on a much larger scale. One research provider expects Volkswagen to become the world’s largest EV manufacturer by 2028 – while others think the German company could achieve that milestone as early as late 2021.

Chinese upstarts such as NIO, Xpeng, and Li Auto are also nipping at Tesla’s heels. But while all of these companies have shares listed in the US, their prices don’t necessarily match their precocity.

In fact, a rally in EV stocks across the board in 2020 has arguably left many valuations looking stretched. Since most of these companies aren’t yet profitable yet, it’s fairest to compare them by looking at market capitalizations relative to projected next-year sales. On that metric and as of the time of writing, NIO is valued at 27x sales, Xpeng at 23x, Li Auto at 11x, and Tesla at 19x.

Volkswagen, meanwhile – which may eventually become the world’s largest EV manufacturer, remember – has a stock market value of less than 1x next year’s sales. Maybe investors are subscribing to the idea that incumbents never successfully transition to a transformative new technology, but that skepticism looks somewhat extreme next to the wild enthusiasm for as-yet unproven EV specialists.

All of this underlines one of the trickiest things about investing in EV automakers right now: it’s still very hard to forecast with any certainty who the eventual winners will be. A dominant market share is one thing – but generating sustainable profit is another, as Tesla has shown: if it weren’t for the company selling regulatory credits, it would still be unprofitable.

That’s why it’s essential to look at other ways to play the EV megatrend. And as well as looking at lithium and battery producers, you may also want to consider investing in companies that stand to benefit from more EVs actually getting out on the road – regardless of which automaker built them.