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Why Is Everyone Talking About Electric Vehicle Stocks?

By Travis Hoium – Updated Oct 28, 2021 at 4:25PM

Key Points

  • Electric vehicles are taking market share faster than you might think.
  • Rising market share has led to extremely high valuations for EV stocks.
  • Will the investing party last? Only if operations live up to investors' lofty expectations.

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EV stocks are hot for good reason as the industry rapidly takes market share from gasoline-powered rivals.

Electric vehicles (EVs) are taking market share at a pace investors may not have anticipated until years from now. According to EV-Volumes.com, 6.3% of vehicles sold in the first half of 2021 were EVs, more than double the 3% share of the market in the first half of 2020. And in some countries in Europe, EVs have more than half of the passenger vehicles sold every month. 

Tesla (TSLA 0.91%) obviously gets the most attention because it's one of the most valuable companies in the world; and with 386,000 vehicles delivered in the first half of the year, it's a clear leader in EVs. But there's reason to be excited about all EVs over the next decade. 

Four plugged in electric vehicles.

Image source: Getty Images.

People are talking because electric vehicles are taking over

Tesla is no longer the only company going all-in on electric vehicles. General Motors is investing $35 billion between 2020 and 2025 to build EVs and autonomous vehicle technology and production. The company says it will introduce 30 all-electric models by 2025, which isn't far away by auto industry standards. 

Ford has announced the all-electric F-150 Lightning, and it recently revealed an $11.4 billion investment in battery and F-150 production. In total, the company expects to invest $30 billion in EVs by 2025. 

On top of the big automakers, upstarts like Lucid, Rivian, Fisker, Nikola, and many others are either starting production or are getting close. Electric vehicles are at a tipping point in gaining market share, and it doesn't look like there's any turning back. 

People are talking because EV stocks are hot

A big reason electric vehicle stocks are getting so much attention is because of the sheer amount of money flowing into the industry. Below is the market cap of Tesla, Lucid, Nio, Xpeng, and even Nikola, which all have multibillion-dollar valuations. 

TSLA Market Cap Chart

TSLA Market Cap data by YCharts

These high valuations are giving these companies a level of validity in their battle against traditional automakers. Companies can raise money to build new factories or acquire competitors or acquire complimentary assets with their stock. Being highly valued gives EV companies a lot of flexibility in growing their operations and that's good news for these companies long term. 

The next step is harder

Eventually, all of these manufacturers will have to prove they're able to build and sell vehicles profitably; and that's going to be the hardest task they've faced. 

The chart below shows the losses manufacturers not named Tesla are reporting, and we know that Rivian has lost over $1 billion in the last year based on its recent S-1 filing with the SEC. With high valuations come high expectations, and so far Tesla is the only company that's proven it can make a profit building EVs. 

TSLA Net Income (TTM) Chart

TSLA Net Income (TTM) data by YCharts

Time will tell if the strong run for EV stocks continues, but I recently argued that by industry standards valuations look extremely high. That could last as EV companies build disruptive business models and take market share from traditional rivals. But there's no question that EVs will be a hot topic for years to come. 

Travis Hoium owns shares of Ford and General Motors and has the following options: long March 2023 $250 puts on Tesla. The Motley Fool owns shares of and recommends NIO Inc. and Tesla. The Motley Fool has a disclosure policy.

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