Changes in the EV Market
Investors Seek Value
Electric vehicle stocks have recently fallen out of favor among investors who have shifted their attention back to traditional automakers. Over the past three months, the 17 largest non-Chinese auto manufacturers’ shares have gained about 11%. In contrast, EV companies’ shares have declined by about 15%.
Traditional automakers are benefiting from a broad stock market rotation among investors who are now chasing so-called value stocks. These are companies which suffered during the pandemic but tend to do better during inflationary periods. EV companies have performed well, just not in recent months. For example, over the past year, Tesla’s (TSLA) stock price has nearly quadrupled.
Large Automakers Have an Edge Over Smaller Competitors
The outperformance of large automakers including Ford (F), Toyota (TM), Volkswagen (VWAGY), and General Motors (GM), can also be attributed to their size. Early on, larger companies were slow to embrace EVs. However, today amidst supply shortages, large companies have an advantage over their smaller counterparts. EV batteries are hard to come by currently. In response, large incumbents are striking multibillion-dollar deals with suppliers, something smaller companies are not able to afford.
Smaller car makers like Nissan (NSANY), Renault (RNLSY), and Tata Motors (TTM) have not rallied like their larger counterparts recently. This is largely because investors are worried that these car companies will not be able to compete with big automakers for scarce batteries and other supplies.
In the early days of EVs, most analysts did not expect that one day the market would be dominated by large incumbents such as Ford, GM, and Tesla. Since EVs require fewer parts than their traditional counterparts, many hoped that smaller players would enter the market, giving consumers more choices.
A version of that scenario could still happen. In China, some of the major car companies were usurped by tiny competitors in the EV space. However, if EV battery shortages continue, this may ultimately benefit a small number of large automakers.
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