ev stocks crash in 2022

In 2022, life came full circle for EV (electric vehicle) companies. It was the proverbial “moment of truth” for EV companies, especially the newly listed startup companies.

There was a flurry of new listings in the EV space between 2020 and 2021. The most notable of these was Nikola in 2020 and at its peak, its market cap rivaled that of Ford.

The problem here was that Nikola was a pre-revenue company. As things turned out later, its disgraced CEO Trevor Milton overhyped the company’s capabilities in order to bump up its valuations.

In 2020 only, SPI Energy, an obscure renewable energy company, soared over 4,000% intraday after announcing plans for an EV foray. There is a list of stocks that are a play on the renewable energy sector.

In 2021, Lucid Motors which is backed by Saudi Arabia’s PIF (public investment fund) and run by former Tesla employee Peter Rawlinson went public through a SPAC reverse merger with Churchill Capital IV.

The SPAC surged as high as $65 on rumors of its merger with Lucid Motors. Lucid Motors merger became the most hyped SPAC deal and the biggest transaction in the industry.

Rivian’s Market Cap Surpassed $150 Billion

Later in 2021, Rivian also went public but unlike fellow EV companies, it opted for a traditional IPO. At its peak, its valuation surpassed $150 billion. Even Lucid Motors’ market cap rose to nearly $100 billion. However, both these companies were yet to make meaningful revenues, let alone profits.

Some Wall Street analysts had assigned even loftier target prices to startup EV companies. But then, singling out only the startup EV names might not be prudent. Tesla’s market cap surpassed $1.2 trillion at the peak last year which made it more valuable than the combined market cap of all major automakers.

EV Bubble Finally Burst in 2022

Fast forward to 2022, and the EV landscape has changed, especially for newly listed names. Rivian is now only around a tenth of what it was at the peak and has a market cap of just above $17 billion. The valuation looks a lot more reasonable now as the company has around $13 billion as cash on its balance sheet.

The cash provides Rivian with a lot of legroom, something that a lot of other startup EV companies lack. Companies like Nikola and Lucid Motors have had to raise cash by selling shares at depressed valuations in order to fund their burgeoning cash burn.

EV Companies Are Facing Trouble in Raising Cash

Others have not been so lucky and Electric Last Mile filed for bankruptcy. Mullen finally bought the company’s assets. Arrival is also fighting a survival battle and has reduced its operations in order to lower the cash burn rate. The stock trades at just about 15 cents now which is not even a fraction of the SPAC IPO price of $10.

Lightning eMotors too trades at just under 40 cents. Far from electrifying the world with their cars, many of the startup EV companies are having trouble even meeting the minimum exchange listing requirements.

Lordstown Motors, which hoped to take on Tesla’s Cybertruck and Ford’s F-150 with its Endurance pickup also trades at just above $1. The company sold its Lordstown plant to Foxconn which now makes cars under third-party contract manufacturing. Foxconn sees EV contract manufacturing as the next leg of its growth.

The Fed Tightened the Screws on Easy Money

The Fed’s accommodative monetary policy led to a lot of easy money which eventually found its way into stocks, mostly growth names. Now, with the Fed raising rates to the highest in years, the supply of easy money which was nothing short of a lifeline for stocks of loss-making growth companies is choked.

Also, almost all the startup EV companies have fared poorly on execution, and many overhyped their capabilities. With EV companies struggling with their 2022 production plans, markets questioned whether they can really deliver on the long-term forecasts which were the basis for their high valuations.

While one may blame the supply chain woes for the production hiccups, the execution by startup EV companies leaves a lot to be desired.

Tesla Stock Plunged, So Did Other EV Names

The valuations of startup EV companies were mostly benchmarked to Tesla and many aspired to be the “next Tesla.” With Tesla’s market cap down from $1.2 trillion to under $400 billion, the shocks are felt in other EV stocks also.

Furthermore, legacy automakers are ramping up their EV production and giving a tough fight to pure-play EV companies. With competition rising, companies have had to lower car prices and things would get even tougher as multiple new electric car models hit the road over the next two years.

Overall, 2022 was the year of reckoning for startup EV companies. Over the next two years, it would be the proverbial separating the wheat from the chaff. We saw something similar a century back when multiple new car companies failed and only a handful made it to the next century.

History might repeat itself yet again as the global automotive industry heads to its next phase and zero-emission cars replace ICE (internal combustion engine) cars.

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