The Rise in Electric Cars: Is a Start Up a Diamond in the Rough?
In recent years, electric vehicles, or EVs, have become a globally sought-after commodity in parallel with climate mitigation movements. This increase in demand has caused electric car producers to continue efforts to innovate the EV market in order to keep a competitive edge. Today, Tesla (TSLA) has become virtually synonymous with the word electric car as the company commanded by the innovative Elon Musk has gained immense clout globally. Musk’s reach goes far beyond the electric car industry as he is involved in space exploration and money transferring services among many other industries. The breadth of Musk’s innovation puts him under a massive spotlight that brings focused attention to his practice of creating unique electric cars, ultimately creating a buzz among other EV manufacturers. Entrepreneurs and engineers alike are striving to be like Musk who has managed to secure a spot atop the skyrocketing electric vehicle market.
Making a case for the widespread implementation of electric cars invariably brings up the differences in environmental effects of gas-powered cars compared to electric vehicles. Those who are skeptical of electric cars argue that electric cars are not better for the environment due to emissions related to production as well as emissions produced by creating electricity to charge the EV. The Wall Street Journal article, “Are Electric Cars Really Better for the Environment?”, explains the caveats that anti-electric vehicles pose through a comparison of the CO2 emissions of a Tesla Model 3 and a Toyota RAV4 throughout their lifetime. A red flag arises as, “before it rolls off the assembly line, the Tesla has generated 65% more emissions than the RAV4” (Wang, Gold, Kuronen 2021). This is concerning if the whole point of an electric car is to provide an eco-friendly substitute for regular cars, however, these numbers don’t tell the whole story. While some CO2 emissions are associated with an electric vehicle as it travels through the measures of producing electricity for a charge, this number is much less significant per mile than the rate associated with gas-powered cars. In comparing the Tesla and the RAV4, after 36,000 miles the net RAV4 emissions are the same as the Tesla and are twice as much after an entire lifespan of 200,000 miles (Wang, Gold, Kuronen 2021). The aggregate effect of many drivers switching to electric cars would cause huge decreases in CO2 emissions and would help negate the harmful effects associated with these emissions. To put into perspective the worthiness of this movement in the United States, in order to stick to the goal of the Paris Agreement the U.S. must limit cumulative vehicle emissions to 39 gigatons between 2019 and 2050. This will help prevent the global average temperature from rising more than two degrees Celsius, making many US states have to follow the strict mandate model that California has imposed which requires all cars bought in the state to be EVs by 2035 (Wang, Gold, Kuronen 2021). After putting an end to the “which is actually better for the environment?” argument, a strong case is made for producing and selling desirable EVs. As companies transition from combustion engines to electric motors, there becomes an opportunity to reshape the composition of the car market. Now, the question is who is going to capitalize on the electric vehicle revolution?
As distinguished car companies such as Ford and Honda move towards hybrid and electric cars, many start-ups are scrambling to make a name for themselves in a growing market. Each start-up is salivating at the prospect of gaining anywhere near the stature that Tesla has managed, having seen a nearly 700% stock price rise in 2020 due to great sales reports (Hoium 2020). Competing with Tesla, who posted their first profitable year in 2020 (Elliot 2021), is a tough task for start-ups, yet wall street investors are hoping to find diamonds in the rough that may be able to somewhat replicate the success of Tesla. The competition is intense. Start-ups worldwide are hoping to break through a pertinent market by pursuing specific characteristics and styles. Amongst notable startups, US companies Rivian and Lordstown Motors are challenging the truck industry, hoping to cater to the taste of lowering emissions in an industry known for “guzzling gas” (Foldy 2020). Many other start-ups are in a similar boat as these two companies with different styles such as luxury, affordability and performance. There is no clear shot who could entertain the amount of success as Tesla has, yet there certainly will be winners and losers, which will affect the outcome of tens of billions of dollars (Foldy 2020).
As a casual observer of the stock market, any EV stock is appetizing due to the expeditious growth of TSLA over the past year. A Chinese company, Nio (ticker: NIO), saw more than a 1,000% increase in the stock price in 2020 leaving the company with a market valuation of $66 Billion (Foldy 2021), further creating excitement towards EV specialists. Such high valuations for these companies sparks concern by skeptics who believe the skyrocketing stocks may be due to a “bubble”(Likos 2020). Nonetheless, the EV industry is here to stay. At this point, it’s hard to tell who might strike gold next, but there are certainly still a few diamonds in the rough. Those intrigued by the EV surge who want a hand on the action should consider EV ETFs such as Global X Autonomous & Electric Vehicles ETF (DRIV) and KraneShares Electric Vehicles & Future Mobility ETF (KARS) rather than tossing all their eggs in one basket on a specific company. While the notion of an EV ‘bubble’ remains at question, as good investing suggests, diversification of EV stocks is the safest means of getting involved in the industry. Although investing in ETFs won’t yield the monumental return on investment that TSLA and NIO saw over the past year, EV ETFs are safer bets that still have prospects of handsome returns.
Sources
Bade, Gavin. 2019. “The Oil Industry vs. the Electric Car - POLITICO.” Accessed April 28, 2021. https://www.politico.com/story/2019/09/16/oil-industry-electric-car-1729429.
Elliott, Rebecca. 2021. “Tesla Posts First Full Year of Profitability - WSJ.” Accessed April 28, 2021. https://www.wsj.com/articles/tesla-tsla-4q-earnings-report-2020-11611708257.
Foldy, Ben. 2020. “These 11 EV Startups Are Chasing Tesla. They Can’t All Win. - WSJ.” Accessed April 28, 2021. https://www.wsj.com/articles/these-11-ev-startups-are-chasing-tesla-they-cant-all-win-11605884422.
Hoium, Travis. 2021. “Tesla Stock Surged 695% in 2020. Is It a Buy for 2021? | The Motley Fool.” Accessed April 28, 2021. https://www.fool.com/investing/2020/12/30/tesla-stock-surged-695-in-2020-is-it-a-buy-for-202/.
Likos, Paulina. 2020. “Investing In the Electric Car Industry | Stock Market News | US News.” Accessed April 28, 2021. https://money.usnews.com/investing/stock-market-news/articles/investing-in-the-electric-car-industry.
Wang, Russell Gold, Jessica Kuronen,Elbert. 2021. “Are Electric Cars Really Better for the Environment?” WSJ. Accessed April 28, 2021. https://www.wsj.com/graphics/are-electric-cars-really-better-for-the-environment/.