An Undiscovered Profit Potential in Electric Cars

Energy Investing, Options

Everyone is abuzz with Tesla, but it’s this longstanding car company that has the best undiscovered investment potential for the electric vehicle boom. Don’t get caught holding the Tesla bag and instead profit from electric cars with this stock. 

The future may be here sooner than you think, and savvy investors will need to be prepared.  It’s easy to forget about investing for the future when there’s so much going on in the present. However, even options traders – who typically have short-term horizons for their trades – must keep an eye on what’s ahead.

A lot of future change is going to be based on new technology, or at least the widespread adoption of a newer technology.  Keep in mind, the internet didn’t become all-important overnight. It took over a decade for companies and customers to fully embrace doing many things online.

So what’s next?

Although you’re probably hearing plenty about it already, it’s the electric car which is going to change our lives the most in the next decade or so.  In fact, electric cars (along with driverless vehicles) could very well have the same kind of impact to the economy the internet once did.

What has started out as more of a novelty actually carries massive impacts on the world economy. As an investor, you need to make sure your portfolio benefits from these changes.

A recent report from Stanford economist professor Tony Seba has gone viral and paints an exciting picture of change for the world’s transportation economy and infrastructure.  Seba believes that eight years from now, no more petroleum based cars, buses, or trucks will be sold anywhere in the world.  He believes the entire land-based transportation market will move to electric by then.

What’s more, Seba suggests people will switch to driverless vehicles over the same period.  Not only are self-driving vehicles far cheaper to operate, but they’re also far safer.  Eventually, the practicality of it all will overwhelm the markets.

Of course, the ramifications of these changes will be extreme, to say the least.  You have two gigantic industries which will be severely diminished or forced into wholesale changes if everything Seba believes becomes a reality.  Both the oil industry and the old-school automotive industry will have to rethink every aspect of how they do business.

With oil companies, there aren’t as many options.  Many oil companies have already branched out into natural gas.  The next step for them is to embrace renewables.  You see, transportation provides the biggest source of demand for oil.  Without cars, trucks, and buses, oil will have very limited uses.  It will still be needed for chemicals and aviation – but Seba thinks the long-term price of crude oil will drop to $25 per barrel.  That would make many forms of extraction not worth pursuing.

Car companies have more viable choices ahead of them.  Long-time players like Ford (NYSE: F) and General Motors (NYSE: GM) could become more like Tesla (NASDAQ: TSLA), and focus on making electric vehicles cheaper and more efficient. Or, Seba suggests they could look to become more like Uber and Lyft and focus on the self-driving aspect.

Well, as options traders, we aren’t buying calls eight years into the future.  Rather, I think you’re seeing some discounting of old-school industries while they still have a chance to respond to the change.

For instance, GM has done pretty well with the electric car so far.  You don’t have to search very hard to find a Chevy Volt on the road.  They’ve shown they’re willing to allocate resources with an eye towards the future.

Meanwhile, the stock itself has been pretty stagnant, as you can see from the chart below:

Will GM ever become the leader in electric vehicles?  Probably not, but that doesn’t mean the stock has zero short-term upside.  I believe the company will at least make a valid attempt at remaining relevant.  And in the meantime, the stock looks a bit oversold.

This is a situation where a medium-term call could come in handy.  The September 33 calls are trading for less than $1.50.  That’s almost four months to reach $34.50 for breakeven – which seems awfully cheap to me.  You could reduce costs even more by purchasing a call spread, although it isn’t necessary with the options being this cheap.

The future of both the oil and automotive industries are in flux.  Despite what may occur, there are going to be many trading opportunities along the way.  Savvy traders will realize they can make money on both sides of the equation.