Charging Ahead or Falling Behind? A Painful Financial Lesson for EV Company Investors.
This time last year I penned an update designed to remind the many pure-play EV company supporters (mostly Tesla investors) that the challenges of legacy automotive companies to execute their EV strategies were not an indication that these legacy automakers were doomed to extinction. I argued then that robust profits from ICE and hybrid vehicle sales were more than adequate to offset EV losses while allowing these legacy companies to continue investing in their EV future.
Fast forward to today, the environment for many pure play EV companies is vastly different. Fisker is on life support. Rivian has paused construction on its Georgia factory. And the once lofty operating margin of Tesla now trails behind Toyota’s.
Rivian and Fisker are experiencing the challenges of trying to profitably scale production. Recent reports alarmingly suggest Rivian is hemorrhaging an astounding $43,000 per vehicle. While consensus once held that Tesla’s vehicle price reduction were strategically aimed at legacy automakers, it is now apparent that Tesla was merely acting like a traditional car company by balancing its growing production capacity with slowing vehicle demand.
Investors have taken notice of the challenges confronting these pure-play EV automakers. At its IPO in 2021, Rivian’s share price soared to $103. Presently, Rivian trades for $11.23 per share. Fisker has been relegated to “penny-stock” status, trading at a meager $0.13. In November 2021, Tesla was valued at $1.2 trillion. Its current market cap has declined to $545 billion - yet, it remains more valuable than Toyota.
What seems to elude the pure-play EV advocates is that companies like Tesla are in the automotive business. They are not technology companies like Apple, Nvidia, or Microsoft as many assume. As automakers, these EV companies face many of the same challenges in the sector that legacy auto companies face. Many investors are learning this painful lesson.
For questions, feedback, article ideas, or story contributions, email: RMcAdory@TaaSMaster.com
Disclaimer
TaaSMaster, LLC is not a registered investment advisor or broker/dealer. All investment opinions expressed by TaaSMaster, LLC are from personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur.