The “Big Market Delusion” Driving Electric Vehicle Stocks

The “Big Market Delusion” Driving Electric Vehicle Stocks
Andrew Rummer

almost 3 years ago1 min

The market value of global auto stocks doubled to more than $2 trillion in 2020 – despite declining sales – as shares of both electric and traditional car companies climbed.

According to a report from California-based research firm Research Affiliates (RA), this move is puzzling – as one automaker’s expansion should come at the expense of competitors. After all, the number of cars sold worldwide is static or falling. 

For RA, electric vehicle (EV) stocks are showing signs of a “big market delusion” – where all companies involved in an exciting new technology rise together, even though they’re often direct rivals.

They point out that airplanes were one of the most world-changing inventions of the early 20th century, yet airlines have struggled to make a profit ever since.

The “valuations of electric vehicle manufacturers are simply not sustainable over the long term,” RA reckons. “The auto industry will remain highly competitive and capital intensive, and not every company can be a winner. We suspect that as EV competition heats up, many companies will fail, as was the case in previous industry booms – whether autos, airlines, or technology – and with time the total value of the industry will recede to more reasonable levels.” 

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