Why Electric Vehicle Stocks Are Going in Reverse

It's been a rough road lately for Tesla and other young electrical vehicle manufacturer stocks.

Electric vehicle makers took a dive Thursday after Tesla's earnings report as investors focus on growing competition and the impact of supply-chain disruptions.

Tesla's (TSLA) shares slid over 11% Thursday after the car and battery maker's fourth-quarter results were released. Its shares are down 17% in the past week, and 21% in January. 

Morningstar analyst Seth Goldstein sees the pressure on Tesla's stock as reflecting more than just the latest earnings report, which he described as "strong."

"I think this is the market realizing the traditional automakers can and will make EVs," he says. "Startup valuations seem to assume many of them would be 100% successful in profitably ramping up a prototype product, when many of those companies had never successfully mass manufactured a vehicle before.”

Goldstein pegs Tesla's fair value at $700, leaving the stock 18% overvalued.

Tesla CEO Elon Musk said during the earnings call there are no plans to unveil new vehicles in 2022, delaying the Cybertruck because of supply-chain constraints.

"The delay will prevent Tesla from being a first mover in the EV light truck market," Goldstein says. "Instead, the Cybertruck will immediately face competition from traditional automakers such as Ford (F) and new entrants such as Rivian (RIVN). As such, the Cybertruck could see slower initial sales, weighing on market sentiment." 

Tesla's slide is at the forefront of several EV-play stocks collapsing in the past year. 

A number of companies focused on electric vehicles, such as Rivian and Chinese firms NIO (NIO) and Xpeng (XPEV) had ridden the wave with Tesla's rally last fall. Those gains have been since erased. 

Rivian has been especially hit hard. The truck maker saw its shares surge 70% following its initial public offering in November. Since then, they have tumbled 41% from their IPO price. In the past 12 months, NIO has plunged 62.3%, and Xpeng is down 30.9%.

Lordstown Motors (RIDE), a SPAC-listed startup focusing on electric pickup trucks, is one of the worst-performing EV stocks on the market. Shares are down 28% this month, and 90% in the last year. Lordstown struggled to start production due to being low on cash. 

"For a long time Tesla got to enjoy being the only firm making a good BEV [battery electric vehicle], but that is not true anymore, and it will make life for startups like Rivian (which Ford owns over 12% of) difficult, in my view," says Dave Whiston, Morningstar's equity strategist for U.S. autos. "For over a decade there's been a lot of easy money out there for the likes of a Tesla or new entrants, but with fears of interest rates rising that easy money will not be as easy and could even dry up completely in a recession. Tesla has enough cash at this point to survive but other new entrants may not."

In stark contrast to new EV companies, traditional automakers are on the rise. Ford has climbed 81% in the past 12 months, and has said that it will produce an electric version of the F-150 that will compete against the Cybertruck. While Tesla faces delays, Ford plans a production surge to quickly move in the EV pickup truck market. 

Toyota (TM), Volkswagen (VWAPY), and General Motors (GM) are all planning to expand into the EV market. Shares of both Toyota and Volkswagen rose over 30% in the past 12 months, outperforming Tesla. 

"A few years ago there seemed to be a lot of market concern about the tens of billions of dollars needed for a legacy automaker to transition to EV, but a year ago after GM CEO Mary Barra's CES keynote, the sentiment seemed to shift to be the more that you are spending the better," says Whiston. "Shortly after that keynote GM announced its ambition for its global vehicle lineup to be 100% zero emission by 2035. I think the market finally realized GM has not been joking the past 4 plus years with its various EV announcements.''

An important change in the landscape are the kinds EVs the traditional automakers are producing.

“There are Cadillac offerings starting in a few months with the Lyriq crossover, and they are offering BEV pickup trucks now and in the near future with the GMC Hummer, Chevrolet Silverado, GMC Sierra, and Ford's F-150 Lightning," Whiston says. "Also, Ford put its iconic Mustang name on a EV over a year ago with the Mach-E. These are the most important and profitable vehicles both firms sell, especially the full size pickups."

Among the traditional automakers, only General Motors and Volkswagen are undervalued at current prices. General Motors has 4-star Morningstar Rating, while Volkswagen is rated 5 stars. Toyota and Ford are both viewed as fairly valued, rated at 3 stars.