For a number of reasons, electric vehicles have been hitting the headlines in recent years. The climate crisis has driven both policymakers and consumers towards sustainable alternatives to ICE (Internal Combustion Engine) powered vehicles, and demand has skyrocketed. With the news that new vehicles will largely be mandated to be electric powered almost everywhere by 2035, the race is on for both new and existing manufacturers to provide alternatives to existing transportation. This has provided ample opportunity for new carmakers like Tesla and Lucid to capitalise on the outsized demand.
It has, however, also left some doubts as to whether this is a sustainable trend. There are a few key factors that will determine whether electric vehicle stocks continue to increase in value. In this blog post, we will discuss some of those factors and help you decide whether now is the time to invest in electric vehicle stocks. If it's investing in sustainable companies more broadly that takes your interest, we wrote a short guide to the sector here.
What are electric vehicle stocks?
Electric vehicle stocks are stocks of companies that manufacture electric vehicles or components for electric vehicles. These companies are often at the forefront of new technologies and trends, and are heavily correlated with the tech market more broadly, so their stock prices can be very volatile. Of course, interest in these has skyrocketed since the huge return exhibited by US auto manufacturer Tesla, whose Model Y is set to become the US's most profitable vehicle later this year. They also make up a not insignificant portion of tech funds as well as index funds which track the stock markets from major economies.
What factors will determine whether electric vehicle stocks continue to increase in value?"
There are a few key factors that will affect the future value of electric vehicle stocks. First, and perhaps most importantly, is government policy. As electric vehicles become more popular, governments are starting to put in place policies that will encourage their use. For example, the UK has announced that it will ban the sale of new petrol and diesel cars by 2030, and other countries are expected to follow suit. This will have a huge impact on the electric vehicle market, as it will increase demand for electric vehicles and make it more difficult for petrol and diesel cars to compete.
Second is the price of batteries. Electric vehicles rely on batteries to power them, and the cost of batteries has fallen sharply in recent years. This is due to a number of factors, including advances in technology and increased production. As the cost of batteries falls, electric vehicles become more competitive with petrol and diesel cars, and this is likely to increase demand for electric vehicles.
Third is the infrastructure for electric vehicles. In order for electric vehicles to be viable on a large scale, there needs to be an infrastructure in place to support them. This includes charging points, which need to be installed in homes, workplaces, and public spaces. There is also a need for batteries to be recycled or disposed of safely, as they contain harmful chemicals. The build-up of this infrastructure will take time and money, and it is not yet clear who will pay for it.
What are the risks and rewards associated with investing in electric vehicles stocks?"
Finally, electric vehicles still have some limitations compared to petrol and diesel cars. They can take longer to charge, and their range is often shorter. This means that they are not yet suitable for long journeys or for use in rural areas. As electric vehicle technology improves, these limitations are likely to disappear, but it will take time.
Furthermore, as is often the case with tech stocks, future growth gets priced in very early. For example, at time of writing Tesla's share price hovers around 100x earnings, a huge premium on what is usually exhibited even by the most aggressively growing companies around. This means that even to grow into the valuation given today, it has to continue to grow at an astounding rate. By buying the stock at today's price, you are taking the chance that it will not only grow into today's valuation, but continue to grow beyond that. Which, given that production is approaching 300,000 vehicles per quarter, is quite ambitious. Exactly why investors have been looking for alternatives - unfortunately this is often to their detriment: not every company can be a Tesla. Electric vehicle manufacturer Nikola for example, famously floated on the US stock exchange before building a single vehicle for anyone. Details since uncovered revealed false metrics and allegations of fraud including reports that the articulated lorry used in their promo video had no engine inside and was simply rolled down a hill.
Choosing individual stocks based on your growth predictions for them is always a risky business - if you don't feel completely comfortable in your decision we suggest investing in a fund that covers that sector instead. We've already covered how to choose stocks that best suit your preferences here, and which platforms offer the best service for buying stocks here.
Electric vehicle stocks have been on the rise in recent years, and there are a number of factors that will affect their future value. Government policy, the price of batteries, electric vehicle infrastructure, and electric vehicle limitations are all important factors to consider. In this blog post, we have discussed some of those factors and helped you decide whether now is the time to invest in electric vehicle stocks. The main avenue you'll have to invest in this market is public markets, so you're limited to only a few manufacturers, including the incumbents. Volkswagen group in particular is making strong inroads with a huge amount of resources allocated. However, given its size, there is unlikely to be outsized growth from here. Your other option is private markets - it will be a challenge getting any sort of allocation to a promising early investment in an electric car company, although tech forward VC funds accept retail clients and will be likely to invest either directly in such automakers, or tangential industries. You can read our guide to VC investing for the public in this guide.
It is also worth considering tangential sectors as a way of taking into account the increased supply too - buying the shovels rather than the gold. You might want to look into companies at the forefront of battery technology, microchips, AI for self driving and charging infrastructure too.
You'll be relieved to know that whatever you choose to invest in, you'll be able to track performance as part of your portfolio allocation using the Strabo dashboard, which you can sign up for at the foot of this page. Let us know how you get on!