Tesla, EV Stock Valuations Make No Sense. Time to Recalibrate.

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Wild trading, due to a plethora of issues, has made it nearly impossible to track valuation of electric-vehicle stocks. Recent ups and downs have shaken up the sector and the rankings of the most valuable, and the most highly valued, EV names.

Take Wednesday. EV stocks are rising dramatically, by widely varying amounts.

Tesla

(ticker: TSLA) stock is up 4.3%. A nice gain, but

Rivian Automotive

(RIVN) stock is up 11.1%. And American depositary receipts of Chinese EV maker

XPeng

(XPEV) are up more than 26%.

Two big things are driving EV stocks today. First, it’s a risk-on day for the market. The

S&P 500
and

Dow Jones Industrial Average
are up 1.7% and 1.2%, respectively.

Next, the Chinese government recently expressed a new desire to further support its domestic economy. That helped investors forget about some of their fears about the potential delistings of Chinese companies from U.S. exchanges, and focus more about improving demand in the world’s largest market for new cars and new EVs.

That factor helps Chinese EV shares the most.

NIO

(NIO) ADRs are up about 21%.

Li Auto

(LI) ADRs have gained more than 27% in Wednesday trading, roughly matching XPeng’s gains. But it’s also fair to attribute some of the Tesla gain to the Chinese news, too, as Tesla sells cars in that country.

What’s more, it’s also probably fair to attribute some of Rivian’s gain to the Chinese news. Rivian doesn’t sell cars in China, but all the EV players are linked, to some extent, by relative valuations. One EV stock going up can drive another EV stock up. The market always has an element of circular logic to it.

Through all the price changes, Tesla remains the most-valuable EV maker by a factor of almost 10. Second is

BYD

(1211.Hong Kong), which has a market value of about $93 billion. Those two are the only two EV makers that produce consistent profits.

The next most-valuable names, in order of descending market capitalization, are:

Lucid

(LCID); Polestar, which is merging with the SPAC

Gores Guggenheim

(GGPE); Rivian; NIO; Li Auto; and XPeng.

Lucid
’s
market cap is about $39 billion. XPeng’s is about $23 billion.

At the beginning of 2022, Rivian was in third place, Lucid was fourth, and the Chinese EV names were all worth more than Polestar. The changing ranking can’t really be explained by EV valuation. Valuations, frankly, are all over the place.

Tesla, the bellwether, trades for about 10 times estimated sales. BYD, Lucid, Polestar, Rivian, NIO, Li, and XPeng trade for 3 times, 27 times, 11 times, 19 times, 5 times, 3 times, and 7 times, respectively. There isn’t an easy way to divine a pattern in any those multiples. Investors can’t correlate long-term-growth rates or near-term-profit expectations with the numbers.

Instead, EV stocks have been tossed on a sea of issues. China and the overall stock market are driving Wednesday trading. But EV stocks have also been impacted by rising interest rates, inflation, and parts shortages. In addition, a spike in gas prices, caused in part by Russia’s invasion of Ukraine, have fueled more interest in EVs and EV stocks.

Most of the 2022 developments have been negative. The EV stocks Barron’s tracks are down about 37% year to date on average.

Another small negative impacting the sector in 2022 is changing EV incentives. EV purchase incentives fell, a little, in China beginning in 2022. And U.S. EV buyers are still waiting for President Joe Biden to pass some of his incentives from the Build Back Better infrastructure bill that didn’t make it through Congress.

There is a lot going on in the EV space. Investors have to digest it all and come up with what EV stocks are worth. Investors could probably use a couple of weeks of calm trading to reset their expectations about absolute and relative valuations for all the players.

Write to Al Root at [email protected]