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Why Millennials’ Big Bet on EV Stocks Could End in Tears

Last Updated September 23, 2020 2:03 PM
Mark Emem
Last Updated September 23, 2020 2:03 PM
  • Half of the top ten equities on Robinhood over the past 30 days are electric vehicle stocks.
  • The excitement over clean energy stocks could end in pain and regret.
  • The EV sector faces multiple risks, including pandemic-related disruption.

Electric vehicle (EV) equities are the new pot stocks for millennials in the second-half of 2020.

Over the past 30 days, 50% of the top ten stocks on Robinhood  have been the makers of electric vehicles and fuel cells.

These are Tesla (NASDAQ:TSLA), Nikola (NASDAQ:NKLA), Workhorse (NASDAQ:WKHS), Nio (NYSE:NIO), and Plug Power (NASDAQ:PLUG).

EV stocks
Over 120,000 Robinhood investors have added Tesla to their portfolio in the past 30 days. | Source: Robintrack 

Robinhood’s flavor of the month is continuously changing. The current bullish attitude towards EV stocks among millennials appears to be driven by a wave of good news in the sector, including better-than-expected sales and new revenue opportunities . Piling on these stocks could end in tears, though. Here are three reasons why.

1. Lofty valuations of EV stocks

Most electric vehicle stocks are trading at high prices. For instance, Tesla’s forward price-to-equity ratio  on September 30, 2019, stood at 43.29. At the beginning of July, this figure stood at 303.03.

Tesla’s forward P/E has jumped over seven times in under one year. | Source: @NorthmanTrader/Twitter 

Tesla’s market cap currently exceeds Toyota’s, making it the world’s most valuable carmaker. Toyota (NYSE:TM) sold slightly under 11 million vehicles last year  while Tesla delivered under 300,000 units.

The other EV stocks aren’t in a better position, either. According to analysts, Nio’s fair market value is $7.50 . Its stock price is approaching $12 for overvaluation of roughly 60%.

On the other hand, Workhorse Group’s stock price is trading at over 14,000 times its sales . Despite revenues falling 50% last year as debt grew, Workhorse stock is up nearly 500% year-to-date .

Analysts place Plug Power’s fair value  as “overvalued.”

When sanity returns to the equities market, the pullback could be severe for EV stocks.

2. Legacy carmakers will fight back fiercely against Tesla and Co

Nearly all traditional carmakers are planning or already have an electric version of their legacy cars. This will increase competition, putting makers of purely electric vehicles on the defensive.

Norway, the world’s most important battery electric vehicle market outside of China, already provides a glimpse of how it’s likely to play out. There, Tesla has lost its first-mover advantage  with traditional carmakers now leading in EV sales.

EV stocks
Traditional carmakers are aggressively fighting to position themselves for a future after fossil fuels. | Source: CleanTechnica 

3. Low oil prices are making ICE popular

The oil demand destruction has led to lower gas prices. Last month the International Energy Agency projected that oil demand would fall by 8.1 million barrels  per day in 2020. With the pandemic not easing anytime soon, oil demand is likely to remain depressed.

As the upfront costs of battery-powered EVs re higher than those of internal combustion engine (ICE) cars, depressed oil prices are bad news for EV stocks in the foreseeable future.

oil price
Low oil prices are a risk for battery electric vehicles. | Source: @GasBuddyGuy/Twitter 

At this point, millennials’ EV stock bets are dubious or, at best, purely speculative. While Tesla and Nio have some history of production and sales, there are those like Nikola that still have zero revenue.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.