What happened
The stock market turned around on Thursday, erasing all the gains it had made on Wednesday as investors continued to worry about the effects of high inflation and interest rate hikes that central banks are putting in place. working to bring it under control. As of 11:40 a.m. ET, the S&P 500 was down 2.1% and the tech-heavy Nasdaq was down 2.9%.
Companies linked to the electric vehicle industry have been particularly affected, with Rivian Automotive (RIVN -7.10%) down 5% and the Chinese luxury electric vehicle maker Nio (NIO -10.01%) down 8.2%. Higher in the supply chain, Lithium Americas (LAKE -4.07%)which is still setting up its lithium mining operations for electric car batteries, fell 4.2%.
So what
The reasons for these stock price declines in the electric vehicle industry are both company-specific and macroeconomic. At the corporate level, Rivian received a vote of confidence from investment bank Truist on Wednesday evening. Launching coverage of Rivian with a buy rating, the Truist analyst predicted the stock – which closed Wednesday at $35.08 – will nearly double to $65 within a year. But investors are not buying it.
Truist calls Rivian a “next-gen diverse mobility tech powerhouse,” The Fly reports, but that’s a bit of a hazy description, and the automaker currently has few numbers to back it up. Over the past 12 months, the $30 billion company has made just $500 million – and no profit. Adding to investor concerns, on Wednesday RBC lowered its price target on Rivian (but oddly maintained an outperform rating), theorizing that its plans to switch to a new type of battery cell and motor design will halt production and delay deliveries. . RBC now expects Rivian to produce no more than 159,000 electric vehicles through 2025, down 13% from previous forecasts. And remember…that’s what Rivian Fans say.
Moving on to the macro picture – and broader concerns that affect not only Rivian, but also Nio and Lithium Americas – The Wall Street Journal reports that Chinese electric vehicle makers, including Nio, are looking to sell more cars in Europe and may eventually invest in manufacturing on the continent as well. But the Log The article notes that in Norway, at least — a leader in EV adoption and a country where Nio and others have already tried to make inroads — Chinese EVs “have yet to sell well. “.
To compound the problem further, CNBC reports that electric vehicles are losing some of their price advantages over internal combustion engine cars, as the price of electricity – and of charging cars at public stations – increase. Citing data from RAC Charge Watch, CNBC reports that it currently only costs about 6% more to fill the tank of a gas-powered car than to charge an EV at a charging station.
Considering that the recommended base price for a Chevrolet Bolt EV is about 35% more than the base price of a Chevy Malibu, for example (or that a You’re here The Model 3 costs twice as much as a Malibu), you can see why European consumers might find electric less appealing right now.
Now what
Admittedly, much of the contraction in the price advantage between powering an electric vehicle and powering a gasoline-powered car stems from the current energy crisis in Europe, spawned by Russia’s war in Ukraine and the sanctions imposed because of that. This crisis won’t last forever, however, and once it subsides, it’s entirely possible that electric cars will once again turn out to be much cheaper to operate than gasoline-powered vehicles.
Also, keep in mind that even giant automakers are fully committed to going electric in the relatively near future. Today, the key question may seem to be “What type of car do consumers prefer?” so that investors are betting, for example, on gasoline-powered Chevys rather than Tesla’s electric vehicles. But sooner or later, the important questions will be “Which electric vehicles do consumers prefer and which automakers will make the most money from them?”
Investors betting heavily against the EV sector now, reacting to relatively short-term news, may be asking the wrong questions.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool fills positions and recommends Nio Inc. and Tesla. The Motley Fool has a disclosure policy.