4 Factors That Are Popping the EV Stock Bubble
Kanebridge News
Share Button

4 Factors That Are Popping the EV Stock Bubble

Electric-vehicle investors are going through a brutal stretch after an epic year.

By Al Root
Thu, May 13, 2021 11:55amGrey Clock 2 min

Shares fell hard across the sector on Wednesday as concern about inflation joined the list of worries dragging on the shares. Stock in Tesla (ticker: TSLA), the leader of the EV pack, dropped 4.4% Wednesday, closing below $600 a share for the first time since early March. Shares closed near the low of the day.

The average drop among the EV stocks Barron’s tracks was about 3%. The S&P 500, Dow Jones Industrial Average and Nasdaq Composite dropped 2.1%, 2% and 2.7%, respectively.

Behind all those declines was news early in the day that consumer prices increased 4.2% year over year in April, far higher than the Federal Reserve’s 2% target. In April 2020, of course, things were falling apart, sending prices lower, amid Covid-19 lockdowns, so the gain was relative to a low base. But the March to April pickup in prices, excluding food and energy, was 0.9%. That rate equals full-year inflation of more than 11%.

Inflation that high is like a parasite, eating into savings and sucking energy out of the economy. It also tends to hurt stock valuations, especially those of expensive growth companies that are expected to generate most of their cash flows far in the future. Higher inflation means higher bond yields, which reduce the current value of future cash flows, partly because higher rates give investors options to earn more interest on their money right now.

Wednesday’s inflation-fueled declines are just the tip of the iceberg, though, for EV companies. Tesla stock is down about 34% from its January 52-week high of more than $900 a share. The average drop from 52-week highs for the rest of the EV names is about 70%. Investors just don’t have the appetite for more speculative, higher-growth stocks in the current environment.

Stock in Churchill Capital Acquisition Corp. IV (CCIV), the SPAC merging with Lucid Motors, is down about 73% from its 52-week high. Hyliion (HYLN) shares are down about 86%. And the Chinese EV makers NIO (NIO), XPeng (XPEV) and Li Auto (LI) have fallen an average of about 45% from their 52-week highs.

Inflation is just the latest problem for the stocks. More competition in the EV business, with traditional auto makers pouring billions into developing vehicles, is one problem. At the same time, the global shortage of semiconductors is constraining automotive production around the globe, making it hard for EV makers to benefit from red-hot demand for cars and rising gasoline price.

What is more, many of the new EV companies became public by merging with special-purpose acquisition companies. Many SPAC stocks, not just the EV-related ones, are struggling. The Defiance Next Gen SPAC Derived ETF (SPAK) is down 34% from its February 52-week high.

A dozen EV-SPAC companies Barron’s tracks are now down 15% over the past year on average. Only five remain above their SPAC merger price of $10 a share: Lucid, Fisker (FSR), Arrival (ARVL), QuantumScape (QS), and Nikola (NKLA).

Investors might believe that means those are the long-term winners among the EV SPAC stocks. But it is also possible their higher prices mean there is still further to fall.

Reprinted by permission of Barron’s. Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: May 12, 2021.



MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Lifestyle
The surprising passions paying off for investors
By Bronwyn Allen 09/04/2024
Lifestyle
Kanebridge News partners with Dubai Fintech Summit
By KANEBRIDGE NEWS 08/04/2024
elon musk
Lifestyle
The Inside Tale of Tesla’s Fall to Earth
By REBECCA ELLIOTT 08/04/2024
The surprising passions paying off for investors

The Knight Frank Luxury Investment Index reveals investments of passion are paying strong dividends, in some areas at least

By Bronwyn Allen
Tue, Apr 9, 2024 4 min

Art was the investment of passion that gained the most in value in 2023, according to Knight Frank’s Luxury Investment Index (KFLII). This is the second consecutive year that art has risen the most among the 10 popular investments tracked by the index, up 11 percent in 2023 and 29 percent in 2022. Art was followed by 8 percent growth in jewellery, 5 percent growth in watches, 4 percent growth in coins and 2 percent growth in coloured diamonds last year.

The weakest performers were rare whisky bottles, which lost nine percent of their value, classic cars down six percent and designer handbags down four percent. Luxury collectables are typically held by ultra-high-net-worth individuals (UHNWIs) who have a net worth of US$30 million or more. Knight Frank research shows 20 percent of UHNWI investment asset portfolios are allocated to collectables.

In 2023, the KFLII fell for only the second time, with prices down 1 percent on average.

Despite record-breaking individual sales in 2023, a surge in financial market returns contributed to a shift in allocations impacting on luxury asset value,” the report said. “… our assessment reveals a need for an ever more discerning approach from investors, with significant volatility by sub-market.

Sebastian Duthy of AMR said the 2023 art auction year began with notable sales including a record price for a Bronzino piece. But confidence waned as the year went on.

“It was telling that in May, Sotheby’s inserted one of its top Old Master lots – a Rubens’ portrait – into a 20th Century Modern evening sale. But by then, it was clear that the confidence among sellers, set by the previous year’s record-busting figures, was ebbing away. In the same month, modern and contemporary works from the collection of the late financier Gerald Fineberg sold well below pre-auction estimates.”

The value of ultra contemporary or red-chip’ art contracted the most in 2023.

“Works by a growing group of artists born after 1980 have been heavily promoted by mega galleries and auction houses in recent years. With freshly painted works in excess of £100,000 almost doubling in 2022, it was little surprise that this sector was one of the biggest casualties last year. There is a risk there are now simply too many fresh paint artists with none really standing out.”

In the jewellery market, Mr Duthy noted that demand was strongest for coloured gemstones of exceptional quality, iconic signed period jewels, single-owner collections, and items with historic provenance in 2023. In the watches market, Mr Duthy said collectors chased the most iconic and rare timepieces.

A Rolex John Player Special broke the model record when it sold for £2 million at Sotheby’s in May, double the price for a similar example sold at Phillips in 2021,” he said.

Although whisky was the worst-performing collectable in 2023, it has delivered the highest return on investment among the 10 items tracked by the index over the past decade, up 280 percent. Andy Simpson of Simpson Reserved, said 2023 was a challenging year but the best of the best bottles gained 20 percent in value. In my opinion some bottles that lost significant value in 2023 will return through the next two years as they are simply so scarce and, right now at least, so undervalued, Mr Simpson said.

Whisky was the worst performing collectable in 2023 but it had highest return on investment over a 10-year period. Image: Shutterstock

Classic car expert Dietrich Hatlapa said the 6 percent fall in collectable vehicle values in 2023 followed a 22 percent surge in 2022. The strong performance of other investment classes such as equities may have dampened collectors’ appetites it’s a very small market so it only takes a minor change in portfolio allocations to have an effect, and there has also probably been a degree of profit taking. However, we have seen some marques like BMW (up 9 percent in value) and Lamborghini (up 18 percent), which appeal to a younger breed of collector, buck the trend in 2023.”

Mr Duthy said a dip in the share price of the top luxury handbag brands last Autumn appeared to spook investors. Last autumn it was possible to pick up an Hermès white Niloticus Himalaya Birkin in good condition for under £50,000. The recent slide reflects a general correction at the upper end that’s been underway for some time rather than changing attitudes to the harvesting of exotic skins.

According to Knight Frank’s Attitudes Survey, the top five investments of passion among Australian UHNWIs are classic cars, art and wine. Fine wine values gained just 1 percent in 2023 as the market continued its correction, said Nick Martin of Wine Owners. “It’s been a hell of a long run, so I’m not that surprised. Some wines from very small producers that had enjoyed the most exuberant growth have seen the biggest drops. It had got a bit silly, £50 bottles had shot up to £200 or £300.”

Favourite investments of passion: Australia vs Global

1. Classic cars (61 percent of Australian UHNWIs vs 38 percent of global UHNWIs)
2. Art (58 percent vs 48 percent)
3. Wine (48 percent vs 35 percent)
4. Watches (42 percent vs 42 percent)
5. Jewellery (18 percent vs 28 percent)

Best returns among investments of passion (10 years)

1. Whisky 280 percent
2. Wine 146 percent
3. Watches 138 percent
4. Art 105 percent
5. Cars 82 percent

MOST POPULAR

Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

Related Stories
Money
Chasing Passive Income, Americans Turn to Vending Machines
By JOE PINSKER 11/03/2024
Property
Australian construction and property industries tackle modern slavery
By KANEBRIDGE NEWS 25/03/2024
Property
The property portal you didn’t know you needed making big strides
By KANEBRIDGE NEWS 05/04/2024
0
    Your Cart
    Your cart is emptyReturn to Shop