What happened
It's a mixed day for electric vehicle (EV) stock investors Tuesday, as shares of battery researcher QuantumScape (QS 5.69%) and luxury EV maker Lucid Group (LCID 0.41%) tumble 6.8% and 5.7%, respectively, through 12:05 p.m. ET. Meanwhile, EV start-up Canoo (GOEV 2.59%) is deftly maneuvering around the pileup, and tacking on a 2% gain -- not quite as impressive as Canoo's 19% run-up on Monday, but still a neat trick, considering.
Well, considering what Elon Musk just said about the state of America's electric grid.
So what
And yes, I'm blaming Elon Musk for this one.
In case you haven't heard, over the weekend, the CEO of Tesla (TSLA -1.11%) -- in one way or another a rival to all three of the EV-industry stocks listed above -- sounded a sour note about the future of EV companies in America.
Now, don't get too alarmed. Musk remains as much a fan of electric cars as ever. It's just that he has some concerns about America's electric grid, and its ability to support the ongoing electric car revolution in the U.S. Speaking at a conference of America's biggest electric utilities last week, Musk characterized the state of the grid as his "biggest concern" right now, given the increasing demand for electricity to power both his own company's electric cars, and also the new industries being born to harness the power of artificial intelligence.
"If you have a fairly static electricity demand [rising about 1% per year, as it has historically] ... then having projects [to improve the electric grid] take a long time is OK," commented Musk. The problem is that electricity demand is not static, but increasing rapidly. PG&E, for example, estimates that electricity demand will rise 70% over the next 20 years, which is more than three times as fast as it has historically. Musk estimates that demand will rise 200% through 2045 -- or nine times as fast as it used to.
Now what
This brings us back to QuantumScape, Lucid, and Canoo -- and Tesla, too. Assume Musk is right and electricity demand is at a tipping point and will shoot up 3x in 22 years. Or even assume Musk is wrong and demand grows "only" 70% in 20 years. Either way, that's going to put a strain on the electricity grid, which can have one of two effects -- or more likely, both of two effects:
1. The grid will come under strain and it will be harder to generate and transmit all the electricity needed to allow the EV industry to keep growing at its present pace.
2. Unless someone repeals the law of supply and demand, rapidly increasing demand met by slowly increasing supply is going to drive the price of electricity higher. And logically, this will cause demand for cars that run on electricity to decrease (because they'll become relatively more expensive to own and operate than gas-powered cars).
This all adds up to a pretty dismal scenario for companies like QuantumScape, Lucid, and Canoo (and Tesla), which have all hitched their electric wagons to the idea that EVs will eventually become cheaper to own than gas-powered cars, such that the industry can scale up and grow. It's a pretty good reason for investors in already unprofitable QuantumScape and Lucid to be feeling more cautious this morning.
And as for investors in Canoo, who are bidding that stock up today, there's just no getting around it: They're making a mistake.
