Thanks to Tesla (TSLA), 2023 could go down as the most transformative year ever for the electric vehicle industry. And it will prove to be a make-or-break year for many EV makers, wherein some EV stocks will soar to the moon, and others go bankrupt. 

What exactly am I talking about? 

The first Great EV Price War. 

Back in December, Tesla announced a series of steep price cuts across all of its most popular vehicles. The cuts ranged from 6% to 19%.

Since Tesla is the “top dog” in EVs – it owns about 13% of global EV market share – the price cuts were felt throughout the industry. 

Just when a bunch of automakers were launching new EVs and hoping to gain market share, the king of the industry slashed its prices to levels well-below that of its competitors’.

And the competition did what it had to in order to compete. 

In the weeks since Tesla’s big price cuts, multiple automakers have slashed their EV prices, too. Ford (F) has cut EV prices by about 5%. GM (GM) slashed  prices by about 15%. Hyundai (HYMTF) cut EV prices by 10%, and Lucid (LCID) and Xpeng (XPEV) each announced 10% price cuts. 

This is great news for the EV industry. Price cuts stimulate demand. That will be especially true in the EV industry, where the high cost of an electric vehicle has been arguably the biggest hurdle to wider adoption. Reduce that obstacle, and you will see significantly wider adoption. 

We believe that all the price cuts we are seeing in the industry today will lead to a flood of new demand for EVs. We expect 2023 to be a banner year for EV sales. 

But what EVs are consumers going to buy? 

That’s the million-dollar question because price wars are great for the companies that win them, and apocalyptic for the firms that lose. 

Here’s what happens… 

Price War Showdown

During a price war, as you might imagine, everyone cuts their prices and sees their margins go down. Everyone becomes tight on cash and marginally reduces their marketing and R&D spend. 

The winners, though, start to see huge upticks in demand and sales. Consequently, they feel confident enough to re-up their marketing and R&D spend. 

All the while, the losers don’t see any uptick in demand or sales. They are forced to stay tight on marketing and R&D spend. 

The winners go on to build better products and market them aggressively. The losers build lesser products and don’t have the resources to market them. 

This gap gets wider and wider, until it reaches a breaking point. And ultimately, the winners drive the losers out of business. 

That’s how a price war evolves. It starts with price cuts and ends with oligopolies and bankruptcies. 

Remember “A Tale of Two Cities” by Charles Dickens? Remember the quote – It was the best of times, it was the worst of times? 

Well, that’s what price wars result in: The best of times for the winners and the worst of times for the losers. 

Tesla just started the EV industry’s first great price war, beginning the formation of a great divide. 

On one side, you’ll have the EV winners, who flourish this year and go on to dominate the industry over the next decade. On the other side, you’ll have the EV losers, who will struggle this year and fall to insolvency within a few years.

If you’re invested in EV stocks this year, you need to make sure you’re invested in the winners. The losers will quite literally go to zero. 

But how do you know if you’re invested in the right EV stocks? 

We look for three things: Technology, Talent, and Resources.  

Finding the Winners in EV Stocks

The winners of 2023’s EV Price War will have a great technological foundation. They will have either engineered a better design for an electric vehicle, a better way to make EV batteries, a better way to source those battery materials, or a better way to manufacture EVs cost effectively. If a company doesn’t have some sort of technological “edge,” it won’t win this year. 

Price war champions will also have exceptional talent. They will be led by seasoned management teams and droves of high-quality engineering talent from top universities across the country. If an EV company doesn’t have ample talent on its roster, it won’t win this year. 

Lastly, these EV paladins will have the resources necessary to scale operations for the foreseeable future. Indeed, it takes a lot of money to make a car. And it takes even more to make thousands, even millions of cars. The EV industry is a capital-intensive business that requires billions to build and empire. And the biggest companies in this space do have billions of dollars on their balance sheet. If an EV company isn’t bursting with cash, it won’t win this year. 

That’s the checklist. Talent. Technology. Resources. If you own EV stocks that don’t check all three of those boxes, sell them. 

Luckily, we’ve found a handful of small EV stocks that do. 

One in particular appears ready to change the industry forever over the next two years. And its stock could be a major winner in that time frame.

On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.