What to Make of the Electric Vehicle Industry
The idea of Electric Vehicles (EV)s is very promising. The world needs to be socially conscious and part of that is decreasing carbon emissions which EVs achieve. According to Transport Environment, in the EU, EVs emit 22% less CO2 than its diesel counterpart and 28% compared to petrol. So the utility argument is sound.
Additionally, challenges such as cost are fast becoming a thing of the past as evidence suggest that maintenance is cheaper and that retail prices can be cheaper by 2027 compared to conventional alternatives. So its safe to say that EVs are here to stay, and the next big thing with automobiles IF everything goes to plan.
Potential
Widespread adoption is yet to occur, which means there is a significant growth opportunity to take advantage of. In 2019, for most developed countries, EV sales made up 2.5%-5% of all car sales (0.6% in Australia). If we are operating under the premise that EVs are better than conventional vehicles, than there is no reason why this number won't rise by a factor of at least 10 over the few decades.
As an investor this is very promising, with major growth forecasts in this industry which are backed up by rigorous fundamentals means that, in this stage of EV adoption, its hard to go wrong. In the long term.
Present Value
World is very optimistic about the future of this industry, and it shows in many of the valuations. At the time of writing, Tesla (which to be fair is more than an EV company) has a Price/Earnings ratio of 387. The S&P (American stock market) is 35.4, which is relatively high in itself, with this particular ratio being the most used way to gauge whether a stock is good value for its price.
If you are paying $387 for every dollar in earnings, than it doesn't take a genius to realise that Tesla, the leader of EV development are in the 'significantly overvalued' category, and could take a serious tumble in terms of price in the short-term. While not every company in this sector belongs to the same category, it is a general theme of exciting technology (Such as EVs) in general, that people overestimate how quickly these innovation can actually disrupt our present lifestyles. EVs are no exception to this rule.
But. As I've spoken about in the past with regards to the Internet Bubble, this doesn't last forever and the general rule regarding investing in production is that, in the long run, it grows indefinitely. While that won't always be true, the general point is, bubbles driven by excitement, are usually right about the level of promise, but wrong about timing. If you invested in Amazon in December 1999, and held it up to today, you would have lost 95% in value before making the eventual gain of over 3000%.
It pays to have the long view.
Free EV Play
Instead of backing one EV manufacturing company, it might pay more to recognise the shift in demand towards EVs, and the economic shifts it will cause, and make some serious money from that.
There is the infrastructure needed to sustain an EV populated world, with charging stations being at the forefront of that. There are the materials that go into an EV car, with lithium, cobalt and nickel all pretty big parts of that equation at the moment, although there is always the risk that may change. There is also more copper required to produce any type of EV compared to conventional automobiles. Renewable energy in general will be required to facilitate EVs environmentally beneficial capacity, which is a growth sector that needs to be covered itself.
EVs are paving the way for a tectonic shift in global supply chains, so its wise to consider how you may benefit an investment you already have.
Competitors
The roar of a combustion engine is something that car enthusiasts truly adore. Nothing turns heads like the roar of a sports car doing twice the speed limit down a road. The happy medium between the EVs and combustion engines (what powers the conventional car) is synthetic fuel which major automobile conglomerate Volkswagen are at the forefront of. While it is an improvement on the performance side, the EV moat is very much its environmental sustainability which synthetic fuel, at this time is still inferior to.
Takeaways
The Electrical Vehicle competitive advantage is very strong, with popularity growing year on year
Whilst overvalued, time tends to reward investors who take the long view, even at the height of a bubble
The effects of this industry aren't contained to it. Whenever there is a lifestyle disruptor, a ripple effect will occur
Coming Soon...
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