The stock market took a U-turn on Thursday, erasing all the gains it made on Wednesday as investors continued to worry about the impacts of high inflation and the interest rate hikes that central banks are implementing to get it back in check. As of 11:40 a.m. ET, the S&P 500 was down 2.1%, and the tech-heavy Nasdaq has lost 2.9%.
Companies tied to the electric vehicle industry were getting hit especially hard, with Rivian Automotive (RIVN -1.32%) down 5% and Chinese luxury EV-maker Nio (NIO -1.33%) falling 8.2%. Farther up the supply chain, Lithium Americas (LAC), which is still getting its operations to mine lithium for electric car batteries up and running, was off by 4.2%.
The reasons for those share price declines in the EV industry are both company-specific and macroeconomic. On the company level, Rivian received a vote of confidence from investment bank Truist Wednesday night. Initiating coverage of Rivian with a buy rating, Truist's analyst predicted the stock -- which closed Wednesday at $35.08 -- will nearly double to $65 within a year. But investors aren't buying it.
Truist calls Rivian a "next generation diversified mobility tech powerhouse," reports The Fly, but that's kind of a fluffy description, and the automaker currently has few numbers to back it up. Over the past 12 months, the $30 billion company has booked barely $500 million -- and no profits whatsoever. Adding to investors' worries, on Wednesday, RBC cut its price target on Rivian (but curiously maintained an outperform rating on it), theorizing that its plans to switch to a new battery cell type and a new motor design will interrupt production and delay deliveries. RBC now expects that Rivian will produce no more than 159,000 EVs through 2025 -- down 13% from previous forecasts. And remember ... this is what Rivian's fans are saying.
Shifting to the macro picture -- and to broader concerns that affect not just Rivian, but Nio and Lithium Americas, too -- The Wall Street Journal reports that Chinese EV makers including Nio are looking to sell more cars in Europe, and eventually may make investments in manufacturing on the Continent as well. But the Journal article notes that in Norway, at least -- a leader in EV adoption and a country where Nio and others have already tried to make inroads -- Chinese EVs "haven't yet sold well."
Exacerbating the matter further, CNBC is reporting that EVs are losing some of their pricing advantages over internal combustion engine-powered cars as the price of electricity -- and of charging cars at public stations -- shoots higher. Citing data from RAC Charge Watch, CNBC reports that it currently costs only about 6% more to fill up the tank of a gas-powered car than it does to charge up an EV at a charging station.
When you consider that the recommended base price for a Chevrolet Bolt EV is about 35% more than the base price of a Chevy Malibu, for example (or that a Tesla Model 3 costs twice as much as a Malibu), you can see why consumers in Europe might find going electric less appealing right now.
Granted, much of the contraction in the price advantage between powering an EV versus fueling up a gas-powered car arises from the ongoing energy crisis in Europe, spawned by Russia's war in Ukraine and the sanctions imposed because of it. This crisis won't last forever, though, and once it abates, it's entirely possible that electric cars will once again prove significantly cheaper to operate than gas-powered vehicles.
Also, keep in mind that even the giant legacy automakers have fully committed themselves to going electric in the relatively near future. Today, the key question may appear to be "Which kind of car do consumers prefer?" such that investors are, for example, betting on gas-fueled Chevys over Tesla's EVs. But sooner rather than later, the important questions will be "Which EVs do consumers prefer, and which car companies are going to make the most money from them?"
Investors who are betting against the EV sector broadly now, reacting to relatively short-term news items, may be asking themselves the wrong questions.