World EV Markets on the Up…and Up
Shares of electric-vehicle makers have jumped more than 30% on average this week, and investors puzzling over reasons for that, and what may happen next.
Shares of Lordstown Motors are up almost 50% this week! Nikola has risen about 22%, and Chinese EV maker XPeng has climbed 27%. That’s an average of 33%.
Barron’s follows 15 EV-maker stocks, and 14 of them are higher, many significantly. The only exception is Fisker, which is down; however, their shares are up 36% over the past month. And six of the 15 have hit new 52-week highs over the past seven days. In fact, $100 billion has been added to EV market capitalizations -- more than the combined worth of stock in General Motors and Ford Motor!
This frenzied activity is difficult to comprehend, but Barron’s has offered a few reasons for the sudden surge. Two are trading-related, while two have more to do with stock fundamentals.
Trading Reason 1: The Tesla Halo Effect
The committee that oversees the S&P 500 index kindled a rally for Tesla by revealing Monday evening that Tesla will be included in the market benchmark on Dec. 21. Tesla then hit a new 52-week high, rising 21% for the week. Tesla’s inclusion in the market benchmark means that Tesla’s prospects should be taken seriously. This is a positive sign for other EV stocks because Tesla’s influence is considerable in that all other EV stocks could get caught up in its wake.
Trading Reason 2: New EV Comparisons
CIIC Merger, a special-purpose acquisition company, agreed to merge with U.K.-based EV player Arrival this week. Since the deal was announced, CIIC shares are up roughly 60%, and values Arrival, which is focused on commercial applications such as buses and delivery vans, at roughly $10 billion.
That comparison might help the valuations of other EV stocks, such as Hyliion, Lordstown, and Workhorse. Of those three, Hyliion is having the worst week, but with a gain of 13%.
Fundamental Reason 1: EV Earnings
NIO earned more than Wall Street expected; their stock is up about 11% for the week -- and more than 1,100% for the year, offering encouraging financial forecasts.
Solid results such as those usually help shares, although how much a stock should rise following earnings isn’t always agreed on by investors.
Fundamental Reason 2: EV Penetration Rates
At an investor conference this week, GM revealed that it wants to sell one million EVs by mid-decade. The company also plans to introduce 30 new all-electric vehicles by then, as well as making them more affordable by reducing battery costs by 60%.
Faster adoption of EVs, resulting in more sales and earnings growth for manufacturers, may also be a factor. "EVs aren't new -- they are having their second coming," Arrival President Avinash Rugoobur told Barron's. "They are ready for prime time now and can scale."
EV demand might surge next year, according to Wedbush analyst Dan Ives. "We believe the stage is now set for a major step up in EV growth, with Europe and China front and center," he said. "With a vaccine now on the radar and a likely economic rebound on the horizon, we believe EV auto sales could disproportionately benefit as more consumers purchase an array of EV models hitting the road in 2021."
What's Next?
Up or down? No one, including Barron's, can say what the trajectory of these stocks will be, week to week or month to month. Just as with other value-oriented investors, there are doubts about the lofty valuations of EV manufacturers.
One important thing to watch is the 2021 delivery forecast Tesla sets up for investors. That will establish expectations for how fast EVs are increasing their share of the auto market. It will also offer an indication about the prospect for Chinese auto demand in the coming year. Presently, Wall Street believes Tesla will deliver approximately 800,000 vehicles in 2021, up from about 500,000 in 2020.