Investors have generally decided to award generous valuations to pre-revenue electric vehicle (EV) OEM developers, apparently believing that the opportunity is large enough that many such companies will ultimately produce highly sought-after vehicles. Phrased a little differently, the market for now has decided they will all be winners, the degree of their likely success being the only differentiating factor.
Rivian Automotive, Inc. (NASDAQ: RIVN) and Lucid Group, Inc. (NASDAQ: LCID), with stock market capitalizations of US$86 billion and US$66 billion, respectively, are presumably the companies most poised for success, but even troubled Lordstown Motors Corp. (NASDAQ: RIDE) and Workhorse Group Inc. (NASDAQ: WKHS) carry stock market capitalizations of nearly US$1 billion each.
A December 18 unveiling of a new EV sedan by start-up Chinese EV developer NIO Inc. (NYSE: NIO) may be an illustration of why such a uniformly rosy attitude may be at least somewhat misplaced. NIO introduced its ET5 vehicle, which has a pre-subsidy starting price, complete with EV battery, of around US$51,250. Meant to compete with Tesla’s Model 3, the ET5 will be available for delivery to customers in China beginning in September 2022. NIO plans to sell the ET5, the fifth EV model it has developed in its five-year history to customers in Germany, Norway, the Netherlands, and Denmark in 2022.
Automotive critics judge the ET5 to have a sleek, appealing look, and, certainly for its price point, it has a number of advanced features. These include NIO Autonomous Driving, NIO Super Sensing, and NIO Adam Super Computing, which together eventually could allow for safe autonomous driving. More tangibly, the company says the ET5, outfitted with a long-range battery, has a very impressive driving range of around 620 miles. In comparison, the Tesla Model 3 and Lucid’s higher-priced Lucid Air model have ranges of around 360 miles and 406-516 miles, respectively.
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Of course, it is unclear if NIO’s ET5 will ultimately resonate with consumers’ tastes, but its specifics and pricing illustrate that the large group of start-up OEM EV developers in North America (which also include Fisker Inc., Canoo Inc. and others) face formidable challengers on a global basis.
Separately, U.S. Senator Joe Manchin’s (Democrat from West Virginia) announcement on December 19 that he will not support President Biden’s “Build Back Better” bill has negative implications for the U.S. EV industry. Senator Manchin’s vote for US$1.75-trillion social spending and climate policy bill is crucial in an evenly divided U.S. Senate. Given his firm stance and the White House’s statement subsequently criticizing him, it is unclear what the next steps for the legislation are.
President Biden’s proposed legislation, which was narrowly passed by the U.S. House of Representatives in November 2021, includes a US$12,500 tax credit, a dramatic expansion from the current US$7,500 level, to qualifying EV makes/models and buyers. One specific provision related to this tax credit the senator opposes is that US$4,500 of the potential US$12,500 of the credit would be available only to buyers who purchase an electric car manufactured by U.S. union labor. According to Senator Manchin, this provision does not reflect “who we are as a country.”
Investors in North American EV OEMs may want to exercise caution related to the stocks in the sector. NIO’s introduction of an attractive, well-equipped model in the space is just one example of the competition these OEMs will face in the future. Even after retracing some of their gains in the last month, many of these stocks have priced in little of such prospective risks.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
