Over the past few years, I have seen this sub (among many others) buy into the EV hype and try and justify the insane valuations that some EV companies are trading at. There are a couple points that I would like to make, and I would love to have a discussion with anybody who would like to.
- The top auto manufactures have a combined 2.7 trillion in revenue, 215 billion in earnings, and 2.2 trillion in market cap. Meaning the ENTIRE (or at least vast majority) of the auto manufacturing industry has a P/E of 10, and a P/B of .81.
-Your favorite EV stock is trading at a P/E of 42 and a P/B of 8.22, meaning that to justify the valuation of Tesla, they would need to have 4.2 X the earnings and 10X the revenue of the auto manufacturing industry as a whole long term. I didn't write this post to single out Tesla, but it was hard to include P/E of other EV manufacturers because virtually none of them have positive earnings.
For frame of reference, it's also worth noting that generally the PE ratio of the automotive industry is about 7-8, meaning that the industry as a whole (not just EV companies) could be overvalued. There's an argument to be made about potentially increasing margins due to the changes in the manufacturing process (EV's will have better margins) and technological advances justifying a higher P/E ratio across the board, but in the short term, getting those technological advances put in place is going to cost auto manufacturers a ton of money (should they choose to implement them). Tesla and the other EV manufacturers have an advantage when it comes to this, because they've committed to EV's only and don't have to worry about manufacturing ICE and EV at the same time or building the infrastructure to rollout EV's largescale. However, the traditional ICE manufacturers are going to follow the money, and if the money is in EV's, they will gladly lose money in the short term for earnings in the long term. We are already seeing this with virtually EVERY major auto manufacturer developing an EV.
The Tesla, Rivian, Lucid, etc investors presupposition that these companies are going to surpass traditional ICE manufacturers because they manufactured EV's first makes zero logical sense, and if you look at the history of "disruptive innovation" (as the guru of the hour calls it), it's almost never the first companies that disrupt an industry that are the most successful long term. The EV only companies have never been in a better position for market share than they were in the past, given that the traditional ICE companies are competing with them in EV's now.
The EV investors are also presupposing that the world will be moving to EV's only, which I don't believe will happen. There is certainly a reality in which the majority of new vehicles being bought are EV's, but there is also one in which they will not. There has been a lot of talk by politicians about EV mandates (these keep getting pushed back but are apparently still going to happen) but in the real world, there are a ton of people who prefer ICE vehicles and would not drive an EV. There will probably be a battle between the left and the right about these mandates and your guess as to what happens with that is as good as mine.
Also, keep in mind that a move to EV's doesn't inherently mean more money for manufacturers. People aren't going to be buying more cars just because they switched from ICE to EV. These stocks will most likely do what they've always done and largely grow near the rate of the economy or slightly lag behind it. I'm not sure what Reddit's obsession with low margin, labor intensive industries is, but there are much better investments to put your money into.
If you REALLY want to bet on EV's, find a traditional manufacturer at a good valuation that's betting on EV's. Volkswagen is a good one in my opinion.
Disclaimer** I do not own stock in any EV companies, but do have an open position in GM
Edit: Typo
