The Garrulous Jay – EV Or Not EV?

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Over the last few years the outlook for electric vehicles has improved in leaps and bounds, supported by government interventions and rising consumer demand. Surely the only way is up for this rapidly growing segment of the transportation market?

According to research by Hedges & Company there are 1.474 billion vehicles on Earth in 2023.

A separate piece of work by the International Energy Agency estimated that in 2022 there were 26 million electric cars on the world’s roads.

Whilst these numbers may not be directly comparable, this suggests that EVs make up less than 2% of the world’s cars: a tiny fraction of the total.

Yet there is rising consumer demand for electric vehicles as people become more environmentally aware, availability increases, prices fall and charging points become more ubiquitous. All of this is being turbo-charged (ahem!) by government intervention, most obviously with plans to ban the sale of vehicles with internal combustion engines over the next two decades.

Small wonder then that shares in Tesla have risen 845% over the last five years.

Surely this is an environment in which every EV manufacturer in the world should be making hay, and investors should be placing big bets on the EV sector confident in the knowledge that demand will far outstrip supply for years to come.

If only it were that simple, but the reality is not quite so pretty. Let’s take a look at some examples…

Five years ago shares in Greenpower Motor traded at $3.29. Today they trade at $3.84 having peaked in July 2021 at $39.21.

But Greenpower’s shares have done well… Rivian Automotive sought to ride the wave of investor enthusiasm by listing on NASDAQ in November 2021, closing at $129.95 on the 12th November. Today they trade at $16.22.

Even Rivian’s performance looks admirable though, compared to that of Arrival. Trading at $496 in February 2020, they peaked at $1,577 a share in December that year. Today you can pick up a share in Arrival for the princely sum of $0.98. Other examples abound of this sorry saga for the new cars on the block.

I think the EV sector provides us with a timely reminder that a great market opportunity does not directly translate into a great investment opportunity. Even where the former applies investors need to be alive to the fact that there will be winners and losers.

Blindly jumping on the EV-wagon without assessing the fundamentals of both a company and its market position runs the risk of a car crash. Those players with first mover advantage, cost advantage with high domestic demand (Chinese manufacturers), or incumbency advantage (traditional car manufacturers) will erect huge barriers to new market entrants.

Individual companies can burn up like a lithium ion battery, even as the demand for their product rises exponentially.

Investors keep being taught the same old lessons… But will they ever learn?