What happened
It's shaping up to be a rough day for EV stocks.
As of 11:35 a.m. ET, shares of QuantumScape (QS 3.69%), a company that is developing solid-state lithium metal batteries for use in electric vehicles, are selling off to the tune of 2%. Companies focused on charging electric car batteries are suffering as well, with shares of Blink Charging (BLNK 11.26%) and ChargePoint Holdings (CHPT 9.46%) down 3.6% and 4.2%, respectively.
NASDAQ: QS
Key Data Points
So what
What's got investors in a funk about EV stocks? It's the economy, of course. Yesterday, the U.S. Bureau of Labor Statistics reported that inflation in America has hit a 41-year high of 9.1%. This morning, the BLS followed up that gloomy news with a report that the producer price index (the inflation rate for companies, which feeds into the inflation that consumers end up paying) soared even higher, landing at 11.3%.
And now, market watchers are taking the view that after raising interest rates by 0.25 percentage points in March, 0.5 in May, and 0.75 in June, the Fed may be preparing to drop a full 1-percentage-point hike on us later this month as it tries to tamp down inflation. Add 'em all up, and that would make 2.5 percentage points' worth of rate increases -- a more than 30-fold increase in the interest rates we had at the start of this year -- and 2022 is only halfway done yet!
I don't mean to alarm anyone, but if this is what's happening, the Fed isn't just tapping the brakes on the U.S. economy; it's stomping on them, even at the risk of sparking a recession. And the likely effect will be to slow the economy, as well as make getting a loan more expensive, which will decrease consumer spending -- especially on big-time items like electric cars.
Now what
Investors selling off EV stocks in response to this trend is entirely understandable, but there's something else you should consider before reflexively joining in today's sell-off:
According to a Bloomberg report that released over the weekend, in the past six months, 5% of new car sales in the United States were electric cars, and according to statistics, that threshold has proven to be a "critical EV tipping point" worldwide. Once a country passes it, "mass EV adoption" has begun, "technological preferences rapidly flip," and in relatively short order, consumer preference swings decidedly in favor of buying EVs rather than cars powered by gasoline. According to the news agency, we've seen this trend play out already in countries such as Sweden, Iceland, and Norway -- where electric car sales now famously dominate the market with 83.5% market share -- as well as in countries such as the U.K. (16.5%) and China (16.7%).
And now the U.S. has entered the on-ramp to this trend as well.
While this fact doesn't guarantee that any single EV battery stock -- QuantumScape, for example -- or EV charging stock -- Blink or ChargePoint -- will grow into a winner, it does strongly suggest that a trend has formed and that some companies operating in this industry will win. So while on the one hand investors' reluctance to buy EV stocks in the face of a looming recession today is understandable, it may also be short-sighted.
Rather than reflexively selling today, now might be a better time to double down on your research and figure out which of these stocks it would be better to buy.
