The electric vehicle (EV) market has been hot, to say the least. But at first glance, investors looking to profit from this industry would appear to have few options. 

#-ad_banner-#Tesla (Nasdaq: TSLA), of course, has done a lot to bring EVs front and center — but you don’t have to invest in Tesla, which is trading at 13 times sales and 30 times its book value after a run-up of more than 500% over the past three years. There are other, much more underrated plays on the EV industry. 

The first one I have in mind is Kandi Technologies (Nasdaq: KNDI), a Chinese maker of vehicles such as all-terrain vehicles and go-karts. 

EVs have yet to really take hold in China given the required infrastructure, not to mention the high cost of EVs. But as contrarian investor Jim Rogers has noted, “China is the next great country in the world.” 

Rogers is encouraged by the government’s decision to inject money into various sectors. In addition, the government is giving Chinese makers of EVs a break on sales taxes until 2018 — a break that outside EV manufacturers like Tesla won’t enjoy. In terms of infrastructure, China’s leading electricity supplier, State Grid Corp., has already built 400 charging stations. 

Kandi has been struggling to find an identity in the EV market for over half a decade. It first started making EVs in 2008, but only recently started gaining traction with Chinese consumers.

The key is that Kandi is not the next Tesla. Its newest initiative is to build innovative garages for renting electric cars by the hour — think Zipcar (a subsidiary of auto rental company Avis (Nasdaq: CAR)). This car share program — a joint venture with China’s largest automaker, Geely (OTC: GELYF) — gives Kandi a first-mover advantage. Kandi is also teaming up with Geely on long-term lease programs, making it the only manufacturer with such partnerships.
 
The other unexpected stock I’m thinking of for the EV market is none other than Harley-Davidson (NYSE: HOG). 

Many investors might be scratching their heads. Harley-Davidson has been building gasoline-powered motorcycles for over a century and already owns more than half of the U.S. market, so it’s safe to say the company knows what it’s doing. But in a market dominated by middle-aged men, Harley-Davidson is turning to electric vehicles to generate more interest in its products. 

This iconic company has unveiled its first electric two-wheeled bike, called the LiveWire. It’s much quieter (and less powerful) than a typical Harley, but its efficiency and sex appeal could be just what Harley-Davidson needs to attract younger buyers. 

Although the LiveWire hasn’t entered production, this move toward EVs is just one of Harley-Davidson’s moves to tackle the motorcycle market from every angle. The company introduced a three-wheeled motorcycle to cater to older riders who might have trouble mounting and balancing on two-wheeled bikes. It’s also looking to tap into the millennial market with its Dark Custom lineup, which is marketed to young adults in urban areas.

HOG pays a modest 1.6% dividend yield. That doesn’t seem like much, but the company has boosting its payout consistently over the past couple of years, including year-over-year increases of 35% in last year’s first quarter and 31% during this year’s first quarter. 

A look at the stock charts of KNDI and HOG this year shows very different performances:

KNDI data by YCharts

Investors in KNDI have had a roller-coaster ride as the stock has swung from year-to-date gains near 80% to negative territory and back. HOG has had a lackluster year, punctuated by a 5% drop today as Harley-Davidson lowered its expectations for shipments and sales for 2014.

Risks to Consider: In May, the U.S. Securities and Exchange Commission accused Kandi’s stock promoter of manipulating stock prices in two companies he brought public, Guanwei Recycling and China Auto Logistics. Sharesleuth.com (a stock-research site backed by billionaire entrepreneur Mark Cuban) brought Kandi’s issues to light several years ago by linking Kandi’s stock promoter to unscrupulous activities. Kandi has not been charged with any wrongdoing, but further bad press could push the stock down even more. 

Harley-Davidson is still too reliant on the baby boomer generation for its sales, but younger motorcycle buyers have shown a preference for sport bikes.

Action to Take –> Buy both these stocks as unique plays on the rising demand for EVs. If HOG can return to its historical average price-to-earnings ratio of 20, it could reach $79, representing 25% upside. If Kandi’s P/E climbs to more in line with other major EV-related companies, it could reach $25, good for upside of 16%.

My colleague Andy Obermueller is a big fan of electric vehicles. In fact, he’s got his eye on another technology that could make gasoline engines obsolete — and make early investors a killing. Follow this link to learn more.