Electric Vehicles: A Bubble to be Burst
Electric vehicles represent more than just a break from gasoline-powered modes of transportations; they illustrate the extremely high demand from consumers for further innovation. The electric vehicle industry, which now has a total market cap of nearly $1.3 trillion, has boomed with investments, in part due to Tesla's major success under the leadership of Elon Musk. However, this everlasting supply of interest seems to indicate that the industry as a whole may be in a bubble. We will look at recent news with regards to other EV companies as well as macroeconomic trends to give a proper diagnosis.
Rivian is an American electric vehicle maker that was founded in 2009 and went public through an IPO on November 10th at $100 per share. This has led Rivian stock ($RIVN) to reach a market cap of $116 billion, which is absurd considered the company has not earned any revenue yet. This large valuation is due in part to the success of Tesla, which has effectively skyrocketed to a global brand; investors ultimately are banking on Rivian's buzz within the EV space. Their growth projections are carrying the stock price to new heights, which leaves room for a sizeable correction if they do not meet their future plans.
Rivian has a variety of future objectives on their agenda that correspond with this seemingly overvalued price, such asproducing 25,000 vans per year by 2025 and building a manufacturing plant in Europe to start building vehicles by 2024. If they are unable to complete these goals that are the basis for investors piling cash into the company, then the company will subsequently see a major correction. The situation with Rivian is very reminiscient of the dot com bubble, where firms where being propped up on the market not on the basis of financial analysis or profits, but on hype.
Although the fad of electric vehicles is not going anywhere anytime soon, the vast majority of the solely EV firms may eventually gain new competitors in the form of industry giants. GM has invested $35 billion in EV product development for new vehicles, while other manufacturers such as Mercedes Benz have announced brand new lineups for electric vehicles for 2022. Only time will tell whether secondary EV companies such as Rivian, Lucid Motors, and Nio will be able to scale as far as Tesla in regards to revenue and valuation.