General Motors Goes Green

On Sep. 8, General Motors ($GM) announced a partnership with Tesla’s competitor, Nikola ($NKLA). GM will help Nikola manufacture their electric pickup truck in exchange for an 11% ownership, which will save Nikola billions and bring their trucks to market faster. This deal is a win-win for both companies:

• Validation… This deal gives much-needed validation to Nikola, the young electric vehicle (EV) maker, which has neither sold or made a single-vehicle yet.
• Catching up… In 2019, GM’s competitor, Ford Motors ($F), made a $500m investment into Rivian, an electric pickup truck maker. A deal with Nikola helps GM stay relevant and competitive.

If you ain’t first, you’re last

Tesla may be the current leader in the EV market but the industry has become more crowded in recent years. The GM-Nikola partnership adds yet another name to a long list of competitors racing to steal Tesla’s 17.9% EV market share:

• Coming in hot… Volkswagen Group, with 12.6% market share in 2020, pledged to invest $66b in 2019 to grow its EV division. Their goal, to release 75 all-electric models by 2029.
• The up-and-comers… In 2020, several new and lesser-known EV makers [e.g. Workhorse ($WKHS), Nio ($NIO) and Li Auto ($LI)] have gone public and raised millions of dollars to compete with traditional carmakers.

The wild wild Westworld

The EV industry is classified as an emerging industry where technology is still in the early stages of development. Looking for the next Google or Facebook? Emerging industries are where you’ll likely find them. But be careful, they’re a wild place for investors. Like other emerging industries (e.g blockchain, cannabis, and 3D printing), the market is highly unregulated and filled with hype in its earliest stages.

• Boom and bust cycle… Emerging industries will often experience a period of rapidly rising stock prices followed by a quick drop (aka the pop in the bubble).
• Lack of regulation… Emerging industries with a lack of regulations tend to attract fraudulent companies that could harm investors.

In past cases (i.e. cannabis and 3D printing industry), stocks that soared to historic levels came crashing down after the hype resided. This correction weeds out fraudulent and underperforming businesses. For investors, emerging industries can be highly risky. Many of the companies you see today may not be around in 5-10 years.