Electric vehicle makers’ stocks have been on a fire this year. Tesla and NIO have respectively gained 189% and 133% year to date. Nikola Corporation has also surged even as the company does not even have a prototype of its upcoming vehicle. Workhorse Stock has surged almost 600% year to date. Blink Charging Company which is an ancillary play on the EV industry is up 184% so far in 2020.
Valuations for electric vehicle makers are getting frothy at least for a value investor like me. Tesla is now the most valued automakers, ahead of market leader Toyota. Nikola Corporation’s market capitalization exceeded Ford’s. Markets seem to be pricing a 100% vehicle electrification over the next decade. Also, the valuations seem to suggest that legacy automakers would not be able to capture the electric vehicle market share meaningfully.
As I noted previously, the surge in EV stocks draws parallels to the dot com boom of the 1990s. To be sure, the surge is not limited to the EV industry alone. Growth stocks like Shopify and Zoom are also trading at insanely high valuations. Read Growth Stocks and the New Definition of GARP for more analysis.
Fundamentally, it is difficult to build a case for EV stocks after the surging valuations. However, betting against EV stocks has been a dangerous proposition this year and short-sellers have accumulated billions of dollars of losses.
Currently, the momentum is with EV stocks and there is a legitimate EV story to play around with. In the near-term FOMO trade might drive EV stocks even higher. Investors who find companies like Tesla too pricey might try to find solace in lesser-known EV companies or ancillary EV players.
Generous target price upgrades from bullish analysts would also keep the pot boiling for EV stocks. Meanwhile, as growth stocks have continued to outperform, value stocks are lagging far behind. Read Is Value Investing Dead as Many Proclaim? for more analysis.
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