What happened
2022 has started with a downturn in electric vehicle (EV) stocks, and that continued today. The stocks of EV leader Tesla (TSLA 0.49%), and start-ups Lucid Group (LCID -0.69%) and Rivian Automotive (RIVN -0.69%), are down between 15% and 37% year to date. Much of that drop occurred in tandem with investor sentiment moving away from many tech and speculative names. As of 12:23 p.m. ET today, shares of Tesla, Lucid, and Rivian are down as follows:
- Tesla is down 2.6%.
- Lucid is down 6.8%.
- Rivian is down 6.1%.
So what
Tesla's drop, which brought its intraday market cap back below $900 billion, comes a day after news of a recall of its Full Self-Driving (FSD) beta software and some potentially concerning Chinese EV demand data.
Image source: Tesla.
Now what
Last week, the National Highway Traffic Safety Administration (NHTSA) recalled almost 54,000 Tesla vehicles in the U.S. for its FSD beta software allowing vehicles to roll through stop signs. The NHTSA said the software could result in Tesla Models 3, S, X, and Y made in the U.S. between 2016 and 2022 failing to stop at a stop sign, potentially increasing the risk of a crash.
Tesla will provide over-the-air software updates on the vehicles. Tesla CEO Elon Musk said he didn't believe there was a real safety issue with the function. He said on Twitter, "The car simply slowed to ~2 mph & continued forward if clear view with no cars or pedestrians," as reported by Reuters.
The pace of implementation of Tesla's FSD technology is being watched closely by investors. Any negative news is not going to be well received, and it's not the first recall of the software. In November 2021, an FSD software update was sent to over 11,000 Tesla vehicles for a "phantom braking" problem.
The report of the recall also came at the same time delivery data from Chinese EV makers seemed to indicate a drop in the pace of growth. Yesterday, several Chinese EV makers, including Nio, reported a sequential drop in January monthly deliveries from December. Tesla's factory in Shanghai and sales in China are important parts of its growth strategy. China is cutting subsidies for EVs by 30% in 2022, and eliminating them completely at the end of the year. Investors will closely watch how that could affect EV demand in China over the course of the year.
That news is likely weighing on investor sentiment at the same time that overall investor risk tolerance has been waning. Lucid and Rivian haven't reported any company-specific news that would explain today's drop. But as with Tesla, their valuations are high relative to their current business fundamentals. Investors may not be ready to jump back into these stocks until they see more results from real business metrics, and not just expectations for potential growth.
