The rocket-fueled rise of Tesla stock is a well-known story, and for several years it was about the only one worth listening to in the electric vehicle realm. That is, TSLA was the only EV-related stock that most people were familiar with, or could easily buy. As the EV market has expanded over the past couple of years, many more companies have rolled onto the stock market stage, and some of them have delivered very entertaining performances indeed.
2020 was a wild and crazy year for the stock market—equities plunged as the plague propagated, then levitated as lockdowns were lifted. One of the hottest segments of the market was a new crop of EV startups, including Lucid (LCID), Proterra (PTRA), QuantumScape (QS), Xpeng (XPEV), ChargePoint (CHPT) and Lightning eMotors (ZEV). Many of the startups went public through special-purpose acquisition companies (SPACs), an alternative to the traditional IPO that boosters say streamlines the process of going public, and detractors say encourages firms to go public before they’re ready, enriching middlemen along the way.
Be the pros and cons of SPACs what they may, the EV class of 2020 followed an arc that’s familiar to any long-time investor—they soared into the stratosphere, then crashed back to Earth. Most of the high flyers have now settled back to prices barely above where they started. Many have roughly followed the trajectory of industry leader Tesla, whose shares were on fire in 2020, then turned meh in 2021.
Meanwhile, unnoticed by most of the mainstream press, a “revenge of the nerds” scenario has been playing out—in 2021, several of the legacy automakers have seen their formerly moribund stocks start to climb.
Emma Stevenson, an Investment Specialist at the British asset management company Schroders, writes in City A.M. that “the old guard are fighting back.” The charts tell the tale—so far this year, Tesla and Chinese EV-maker NIO have seen their share prices languish, while Volkswagen, Toyota and Stellantis have delivered healthy gains.
Above: CNBC's Phil LeBeau reports on the top electric vehicle stock picks from another auto industry veteran (YouTube: CNBC Television)
Volkswagen has been the best performer of the five, and it may be no coincidence that it is currently the most forward-looking of the world’s legacy automakers. In March, the Volkswagen Group announced plans to deliver a million electrified vehicles in 2021, and was rewarded with a sharp surge in its stock price.
What’s behind the role reversal? Stevenson offers several reasons. The obvious one is simply that the valuations of young companies, some of which have so far produced few or no vehicles, had gotten so high. “The market has been paying handsomely for anticipated future growth at ‘new world’ carmakers,” said Fund Manager Katherine Davidson. “Meanwhile, ‘old world’ companies like Volkswagen have—at least until recently—been valued as though they were going out of business.”
Another factor is that the men (and one woman) in the corner offices are no longer in denial mode—they understand as well as anyone that the days of fossil fuel vehicles are numbered. “The car industry now seems to be coalescing around the view that battery EVs, as opposed to hybrids or other fuel sources, will be the winning technology,” writes Emma Stevenson. Hybrids are increasingly seen as legacy technology, and hydrogen fuel cells are “a sideshow.” Falling battery costs, increasing vehicle ranges, new government regulations and subsidies in Europe—all are fueling a growing consensus that pure EVs are the future, and “the conventional automakers have no choice but to re-focus their efforts on this area.”
Some observers of the EV scene have predicted a classic disruption scenario, in which the legacy automakers wither away, to be replaced by Tesla and its followers. Something like that could still happen, at least to some of the more backward-looking brands (cough, cough! Toyota), but at the moment, most investors seem to believe that the Old Guard will survive, and even thrive, in the brave new electric world.
“Without Tesla, it’s unlikely that the EV and clean mobility industry would be where it is today,” said Energy Transition Fund Manager Alex Monk. “But the conventional carmakers aren’t just sitting back and watching. Volkswagen is not only ramping up EV production; it’s also building out battery capacity. These companies, simply due to their size, will sell far more EVs than Tesla can. It will take time for these conventional automakers to transition their business models, but the valuation disconnect between pure-play firms like Tesla and the conventional players is enormous.”