The soaring of crude prices and, along with it, the price at gas pumps has made investors bet on electric vehicles, with Tesla Inc. being their only choice. The recent slump in EV stocks had made Tesla, the world’s largest electric car maker and industry leader, ahead of its others start-up challengers.
The impact of surging oil prices
The divide was apparent when the two biggest publicly traded EV start-ups in the U.S., Rivian Automotive and Lucid Group, saw a massive sell-off in their stocks after disclosing supply chain disruptions.
Surging oil prices have made electric cars more attractive, with the U.S. President calling for greater adoption of EVs. But oil is not the only issue. The Ukraine war has upset the supply chain, and with Fed about to raise interest rates, investors are careful about risk and closely scrutinize EV companies that are not profitable.
With not enough options in the EV Segment, Tesla remains the only viable business as Chief strategist at Interactive Brokers LLC, Steve Sosnik. He says that all others are concept stocks.
As per Bloomberg News, last year, Lucid and Rivian sold 1000 EVs combined compared to nearly a million vehicles sold by Tesla.
A few months ago, Rivian was touted as the next Tesla in the making with a market value more than Ford Motors. However, last week’s disclosure by the Electric Pickup Truck maker that it was raising its prices due to higher input costs due to shortage in components resulted in the stock price plunging by 30% between Tuesday and Friday.
Even though Rivian rolled back the price hike, the stock is still down by 70% from its November peak and erasing about $100 billion in market capitalization. Lucid shares declined by 14% on Tuesday after it reduced its target for production in 2022, saying it was facing challenges in supply chain and logistics. The stock has now fallen 59% from its November peak.
According to Charles East, senior equity strategist with Truist Advisory, the problem with emerging EV Startups is their lack of experience in the manufacturing process. The new EV start-ups need to ramp up their production and sell the cars to generate better cash flow.
Tesla has not been spared from supply chain issues, and Tesla has managed to navigate the challenges better than others. Its factory in Germany was approved on Friday. As per reports from Japanese national broadcaster NHK, Panasonic Corporation reportedly plans to make lithium-ion batteries for Tesla.
Tesla still has a massive market capitalization of $866 billion despite being down by 20% this year. The stock is the fifth largest stock on S&P 500 index. Despite its projected profit cut by half in the last three months, its price to projected earnings multiple in the next 12 months is 79 times – three times more than Nasdaq 100 average.
