Weekly Brief: The EV Industry Is Putting Pedal To Metal, But Are We Headed For Burnout?

Weekly Brief: The EV Industry Is Putting Pedal To Metal, But Are We Headed For Burnout?

about 2 years ago3 mins

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The EV revolution is only picking up pace, with manufacturers set to hit the stock market at a rate of knots in the next few years.

🕰 Recap

  • Tesla’s market value topped $1 trillion in October, making it the second-fastest company ever to reach that mark
  • Earlier this month, Rivian raised nearly $12 billion in the sixth-biggest initial public offering (IPO) on an American exchange
  • And Bank of America thinks that’s just the start, forecasting this week that the EV industry could raise $100 billion from IPOs by 2023

✍️ Connecting The Dots

According to research provider Bloomberg New Energy Finance, passenger EV sales are set to climb from 3.1 million in 2020 to 14 million in 2025 – by which point they’d represent 16% of all new car sales. This astronomic rise is being driven by two key factors. First, eco-conscious consumers are increasingly opting to buy EVs, especially now that they have plenty of cheaper models to choose from. Second, there are now at least 15 countries and 31 cities or regions that have announced plans to phase out sales of new internal combustion vehicles.

But a more-than-fourfold increase in EV sales means battery manufacturers, EV-makers, charging station operators, and more will need to invest big in their own businesses. And they’re turning to the stock market to raise the cash they need to do just that. In fact, Bank of America made a bold prediction just this week that the industry could raise as much as $100 billion from IPOs from the start of 2021 to the end of 2023.

And that’s not exactly farfetched: there’s been insatiable demand for EV stocks lately, with Tesla becoming a trillion-dollar company last month, Rivian pulling off this year’s biggest IPO despite not having sold a single vehicle, and Lucid Motors surpassing Ford and General Motors in market value. That massive uptick in valuations means any EV company looking to sell shares stands to raise a lot of cash, so it follows that they’re making hay while the sun shines.

🥡 Takeaways

1. There could be a bubble brewing.

Investors have pushed valuations of EV makers to all-time highs: they’re worth a combined $1.7 trillion, according to data from the Financial Times – around 12x their combined forecasted sales next year. That’s more than double the valuation multiple of the tech-focused Nasdaq 100 Index, which is currently 5.5x next year’s forecasted sales. As investment firm Research Affiliates put it, it’s likely a sign of so-called “market delusion”, where valuations in a hot industry all rise in sync even though the rival companies can’t possibly all be winners.

2. So you might want to look elsewhere.

Lucky for you, EV makers’ stocks aren’t the only way to play this theme: you could also invest in companies that build and operate EV charging stations, or in firms that mine copper – one of the key metals found in both charging stations and EVs themselves. Alternatively, you could invest in firms that manufacture batteries, or those that mine the key metals – like lithium and nickel – that go into them.

🎯 Also On Our Radar

Plant-based meal replacement maker Huel is eyeing an IPO on the London Stock Exchange after a surge in popularity for its products during the pandemic. Huel, which could be valued as high as $1.3 billion, makes “complete food” powders, drinks, snacks, and dried meals that have become popular with fitness-focused consumers, as well as busy professionals with no time to cook.

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