Why People Are Putting So Much Faith in EV Stocks
How numerous factors have led to the electric vehicle market’s boom
Investors have taken note of the future for electric vehicle (EV) automakers and it is bright, to say the least. Startup EV companies like Lucid Air (LCID) and Rivian (RIVN) with little to no earnings or profits have multi billion dollar market caps. In the last quarter of 2021, Rivian reported $1M of revenue, while Lucid reported only $232K. Rivian’s market cap at its height was $110 billion. Lucid has a market cap of over $42 billion and the price-to-earnings ratio is extreme. A bubble has formed and it is imminent that it will pop. Similar speculations were made prior to the dot com crash of the early 2000s. Investors are hopeful that EV Stocks will not fail like dot com stocks did, but they have plenty of evidence to suggest otherwise.
One reason to assume the security of EV stocks such as Rivian are the company’s supporters. Rivian is backed by both Amazon and Ford, with Amazon ordering 100,000 delivery vans from them and Ford investing $500 million into the company to develop their own EVs. Lucid is backed by Saudi Arabia, who owns about 63% of the company in stocks, approximately $40 billion. Startup companies are not on their own because notable industry giants are involved and helping them stay afloat, thus it is likely the bubble will not pop and startups will remain steady in their stock price. The most widely known EV Stock is, of course, Tesla, with a whopping market cap of over $1.2 trillion. To put that into perspective, Tesla is worth approximately 10 times as much as Volkswagen AG, the parent company of Audi, Porsche, Lamborghini, Bentley, SEAT, ŠKODA, Ducati, Scania, and MAN. Tesla is a 19 year old company, while Volkswagen has been around for over eight decades, yet Tesla has managed to surpass its value tenfold in a fraction of Volkswagen’s lifespan.
Investors are eager to find the next Tesla, and it seems clear that they are willing to put their money on the line for startup companies that have yet to prove themselves. Who can blame them? All evidence suggests that EVs are the future. Here’s why:
Over the past decade or so, the world’s leading countries have taken many steps to reduce the effects of climate change. The Paris Agreement, signed by 196 countries, established the goal of keeping global temperatures, “well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels”. Experts say that in order to achieve this goal, “net zero” must be achieved by 2050. “Net zero” means “reducing emissions as much as possible, as well as balancing out any that remain by removing an equivalent amount.” One of the primary sources of emissions is transportation, and a primary form of transportation is cars. It only seems logical to assume that countries are going to impose bans on the sale of combustion engine cars in the next couple of decades since they are such significant contributors to global greenhouse gas emissions. Countries have already begun to take that first step. In July of 2021, the European Union proposed a ban on the sale of new gas and diesel powered cars by 2035. Norway has taken an even more extreme approach, banning the sale of gas powered vehicles by 2025. In 2021, ⅔ of all vehicles sold in Norway were EVs. Singapore, Sweden, and other countries’ bans are set for 2030. In November of 2021, President Biden signed a $1.2 trillion infrastructure bill that set aside $7.5 billion in funding towards electric vehicle charging stations, and is targeting 50% of all vehicles sold in the US to be EVs by 2030.
In the beginning of 2021, EVs held a 7.2% market share of global car sales, up 4.3% from 2020 and 2.6% from 2019. This number is expected to continue to rise dramatically. It is safe to say that EVs will dominate the car market in the near future.
All of these developments push forth one common theme: The internal combustion engine vehicle is dying. It is becoming more and more evident that the world is moving towards a future of EVs and slowly leaving behind the internal combustion engine vehicle. Investing in EV startups now seems promising as we shift towards a society where the EV flourishes.
