Is Tesla the only viable electric vehicle play?

The logic: Oil prices rise, consumers flock to electric vehicles (EV), carmakers report higher sales and stocks go up right? If only it was that simple…

Electric vehicles’ 99 problems

The recurring theme of supply chain issues is also seen in EV, causing several EV makers to lower 2022 production targets — including once hyped Rivian (NASDAQ:RIVN) and Lucid (NASDAQ:LCID):

• Both lowered production targets significantly in recent weeks — with $30B+ market caps, they’re barely delivering any cars.
• It’s hard to justify valuations even after their 65% and 47% respective falls in 2022.

Short supplies have led to price increases on available models — with yet another price increase from Tesla — after already raising prices over a dozen times last year.

Problems on problems: 30 new EV models are hitting the market this year — doubling the available options. Meanwhile, semiconductor chips in EVs are in short supply, and there’s the battery issue…

• Nickel is the biggest cost in EV batteries — and the recent 250% spike in nickel prices doesn’t help.
• Nickel prices may fall eventually but analysts see them remaining high for 2022 — potentially adding hundreds to EV prices.

Will the king stay the king?

In 2021, Tesla had the most EV market share at 13.8%, Volkswagen Group at 11% and traditional carmakers (i.e. GM, BMW Group) following closely — while emerging EV makers were nowhere to be found. Rivian and Lucid combined sold nearly 0.2% of Tesla’s vehicle sales in 2021.

Tesla faces the same issues as everyone else — but it has years of experience (via BBG).

• Tesla is the only EV company with a viable business — “all the other ones are still concept stocks” — per chief strategist of Interactive Brokers.
• Emerging EV manufacturers are “disadvantaged due to lack of manufacturing experience” — per analyst at Truist Advisory Services.

Last week, Tesla’s German factory was given final approval — expanding in Europe’s market. In 2023, Panasonic will also begin mass-producing Tesla batteries with a $700M investment.

Investors: Only game in town

As markets shun hyped, overvalued and unprofitable EV companies, investors can go one of two ways. One is on traditional carmakers like Volkswagen (OTC:VWAGY), General Motors (NYSE:GM) and Ford (NYSE:F). The other — Tesla.

With a $792B market cap, Tesla trades at a 72x price-to-earnings multiple, 3x more the Nasdaq 100 average  — abig premium compared to other carmakers e.g. 7x larger than Volkswagen.

Despite these numbers, as Bloomberg puts it — “in many ways it’s (Tesla) the only game in town”.