As I write this, TSLA stock is selling for US$709.42. That means, if you follow such things, it’s now some 42 per cent down from its November 4, 2021 peak of US$1,243.49. Another week like this and it might break through that psychological 50-per-cent resistance barrier that will truly signal a rout. Things are so bad that Tesla’s number-one propagandist, ARK Invest’s Cathie Woods, has been dumping Tesla and buying GM. Oh, the ignominy.
Nor is Tesla the only — or even the worst-off — EV start-up floundering. Rivian, as the headlines have been screeching, is down almost 80 per cent from its peak, and is seemingly so unlikely to rebound that Ford, which once owned as much as 12 per cent of the company’s shares, is dumping its RIVN holdings as if they were champagne futures just before the Great Depression.
At least Rivian’s still in business. Lordstown — once the darling of the EV pickup set — had to sell its (formerly GM) assembly plant to Foxconn just to scrape up enough cash to soldier on a few more months. Foxconn, says CNBC, plans to use the factory to build EVs for clients under contract, including Lordstown’s own Endurance pickup, but also the low-cost Fisker PEAR EV being promised for 2024. That may yet prove precious little salvation, since Foxconn was also part of a partnership that was supposed to save once-bankrupt Faraday Future (remember they of the outrageous FFZERO1 electric supercar?) and has been promising to build both cars and production facilities, without success, for years now.
The news gets even worse if you have money in Canoo (they of the cuter-than-a-bug VW Transporter van-cum-pickup) which, according to its own missives, faces “substantial doubt about the company’s ability to continue as a going concern.” It seems that its cash reserves — US$104.9 million as of March 31 — are less than its quarterly losses (US$125.4 million in the last quarter) which means, if I successfully coordinate my iPhone’s calculator and calendar apps, it’ll probably be running out of cash sometime around noon on June 18.
Throw in heavy-duty truck-maker Nikola which, at today’s US$6.22 valuation, is some 90 per cent off its June 2020 peak, and the last little while has seen a fair routing of new-age, zero-emissions mobility stocks. Indeed, roll back the news cycle just 18 months and every one of the preceding EV-specific automakers was being touted as the future of the auto-making, poised to decimate legacy automakers, that were very much, the headlines also claimed, the industry’s past.
So what happened? Why have all these front-runners stumbled so badly?
The 2023 Canoo pickup truck Photo by Canoo
Well, the easy explanation — and the one everyone’s bought into ever since Tesla’s market cap started going through the roof — is that Tesla, Rivian, Canoo, et al. aren’t automakers at all. They are, in fact, tech companies. That their products have wheels, motors, and batteries is beside the point. They represent Silicon Valley’s takeover of Detroit and, as the proponents of the New Economy posited, should be valued as such. Hence why we were told we would have to get used to price-to-earnings (P/E) ratios of 40:1, 50:1, and even 100:1 for companies that, despite their high-tech pretensions, still park their products in suburban driveways. This has been the justification for Tesla’s sky-high market cap — even in its devalued state, it’s still worth more than all other automakers combined — since before TSLA first shot through the US$100-a-share barrier.
One supposed expert on SeekingAlpha.com even says — and this is so silly I refuse to give him, via a hyperlink, the publicity he so desperately seeks — that Tesla is neither a car nor a start-up, but a “story” stock. In fact, he also calls it a “cult” stock — “based on the reverence its shareholders display” — as if that’s a good thing. I may not understand modern monetary theory — or even the intricacies of mark-to-market valuations — but I do know when you start claiming that the company’s investors being cultists is a selling feature, we’re hitting another Joe-Kennedy shoeshine-boys-giving-stock-tips moment in the investment cycle.
The fact remains that Tesla and all its pretenders are still car companies and, despite their abundance of semiconductors and the “miracle” of Autopilot, they are still sport the same four tires and steering wheel that cars have for more than a century now. More importantly, they are the second-largest expense on most consumers’ spreadsheets, which makes them exceedingly cost- — that should be read “interest rate-” — sensitive.
One supposed expert even says that Tesla is neither a car nor a start-up, but a “story” stock.
Doubly so, in fact. Not only do interest rates affect auto loan and leasing rates, but the squeeze that’s just starting in mortgage rates is likely to force already stretched Canadian consumers to alter their other high-ticket purchases. And, despite EVers’ contention that the Model 3 and its ilk save money “in the long run” — questionable if you take out the purchase incentives being tossed about — when your mortgage just went up 500 bucks a month, a battery-powered car may just be a capital outlay too far, no matter how comparatively cheap electricity is. And then there’s the question of the incentives driving EV growth. How will governments afford them as rising interest rates drive the cost of servicing what are already massive national debt loads even higher?
Thus do Tesla and pretenders to its throne seem to be at the mercy not only of the traditional boom-or-bust tech stock cycle — which seem to rise and fall with the abundance, or lack thereof, of free money — but also in the crosshairs of the traditional interest-rate fluctuation of housing costs and auto financing. Simply put, current average transaction prices of $50,000 — influenced, at least in part, by the recent popularity of high-priced EVs — will probably become unsustainable if the Bank of Canada and the American Fed hold to their promised interest rate hikes. Most affected, I suspect, will be the new Millennial homeowner who also happens to be the prime candidate for zero-emissions messaging.
CEO RJ Scaringe explains how the startup Rivian Automotive’s electric vehicle factory works in Normal, Illinois, U.S. April 11, 2022. Photo by Kamil Krzaczynski /Reuters
That’s not to say that Tesla is somehow on the precipice of disaster. And certainly some of the degradation of its stock price has been the result of Musk’s ill-advised foray into the world of Twitter (although Leo KoGuan, the third largest individual investor in Tesla, says that only accounts for about a quarter of its market cap losses). Indeed, whether or not its stock collapses more — or somehow rebounds despite the downturn — the company will remain at the forefront of EV sales.
Its lead in battery technology may be illusory, but one cannot discount the value of its superb Supercharger network. Nor should Tesla halt its aggressive business tactics — the rapid-fire development of new technologies or the seemingly fearless way Musk plunges into new businesses — that has so terrorized legacy automakers.
Hell, it doesn’t even mean that Elon Musk doesn’t have a story to tell. But they’re cars. Luxury, battery-powered cars, but cars nonetheless. Cars that will, no matter how much you believe that we’re living in a new fiscal era, bow to economic cycles. And, like so many past downturns, it’s the upstart and unproven, if we’re to judge from the recent craterings of Tesla, Rivian, Canoo, and Lordstown, that will most feel the impact.
That “story,” it seems, remains the same.
Keyword: Motor Mouth: Why EV stocks are absolutely tanking