The automotive industry is on the cusp of evolving more over the next two decades than it has over the past century. Between autonomous driving vehicles, the transition to electric vehicles (EVs), robotaxis, and vehicles as a service, investors aren't sure where the next game-changing breakthrough will come from. With that in mind, here are three stocks that have been sold off but have immense upside in the future: Aptiv PLC(NYSE: APTV), QuantumScape(NYSE: QS), and Mobileye Global(NASDAQ: MBLY).
Driving the future
While Aptiv isn't a household name, the company is extremely well positioned moving forward. The technology company bases its business around active safety, autonomous vehicles, smart cities, and connectivity.
Three global trends will help drive the company's business going forward: Electric vehicles, connected vehicles, and a focus on software and digitalization. More specifically, its business should boom with the adoption of advanced driver assist systems (ADAS) and continued growth in vehicle electrification. Even better for investors is that Aptiv -- unlike pure play EV stocks -- still stands to benefit even if the transition to electric vehicles sees a rise in hybrids first, rather than skipping straight to full electric vehicles.
A bonus for Aptiv investors is that while you wait for electrification trends to gain traction in the near term, the company has made clear its intentions to return value to shareholders. Aptiv returned $434 million to shareholders through repurchases in the second quarter alone, over $1 billion year to date, and announced a new $5 billion share repurchase authorization which represents over 25% of its current equity market capitalization.
Game-changing batteries
QuantumScape is one of the most intriguing and potentially game-changing companies in the EV industry. Its testing and technical data might intimidate some investors. To simplify what QuantumScape is aiming to accomplish, the company is developing solid-state battery technology that will enable faster battery charging times, extend EV range, remove part of the bill of materials to lower costs, and increase safety.
Essentially, if QuantumScape can do what nobody else has accomplished by developing and commercializing its battery technology, its growth potential is nearly immeasurable as EVs take over the roads in the coming years.
As with many young start-ups -- especially considering that QuantumScape is currently pre-revenue -- the company finds itself in a race against time as it burns cash in research and development and preparation to increase volume. The great news is that just last month, the company inked a deal with Volkswagen's battery company, PowerCo, to mass-produce battery cells based on QuantumScape's technology platform.
The deal will send a $130 million advance royalty payment, assuming certain progress is met. It also enables PowerCo to manufacture up to 40 gigawatt-hours (GWh) annually with an option to boost that up to 80 GWh, or enough to supply up to one million vehicles.
The partnership not only gives QuantumScape its first real path toward commercializing its upcoming battery cells, it extends the company's cash runway by 18 months to 2028. This is a high-risk, high-reward, and speculative investment, but the company has massive upside if it can solve the riddle of solid-state battery commercialization.
Eye on the prize
While Aptiv focuses on the brains and nervous systems of electric vehicles, among other things, Mobileye Global is more tilted toward artificial intelligence (AI) and is a developer of ADAS and autonomous driving technologies specifically.
Mobileye is pushing its technology further with its EyeQ6H platform, a centralized chip with three times the power of its predecessor, and SuperVision, the company's end-to-end ADAS tech. SuperVision is driven by 11 cameras and autonomous vehicle maps, and will support level 2, 3, and 4 autonomous capabilities.
What's intriguing about Mobileye for investors is that unlike many young companies focusing on the electric vehicle evolution or autonomous vehicles, it has a clean balance sheet that boasts positive operating cash flow. It has $1.2 billion in cash and cash equivalents with no debt, as of the end of the second quarter.
Currently, Mobileye stock is getting pummeled as softening EV demand and some delays in autonomous driving development within the industry caused fewer orders for Mobileye products. But for long-term investors, this is merely a speed bump.
What it all means
Over the past year, Aptiv, QuantumScape, and Mobileye have shed 36%, 51%, and 45% of their values, respectively, compared to the broader S&P 500 rising 20%. The slowdown in EV growth and autonomous vehicle challenges have stifled near-term growth, but all three companies have immense upside in the decade ahead as future technologies become reality in day-to-day life.
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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Aptiv and Volkswagen Ag. The Motley Fool recommends Mobileye Global. The Motley Fool has a disclosure policy.
