Tesla strengthens as oil rises, other EV stocks not so much

The recent plunge in EV stocks has left the industry’s most valuable and the world’s largest electric-vehicle maker well ahead of its upstart challengers. The gap was apparent last week when two of America’s biggest publicly held EV startups — Rivian Automotive Inc. and Lucid Group Inc. — disclosed supply-chain disruptions, prompting a sharp sell-off in both stocks.

The growing struggle for everyone except Tesla comes at a time when they should flourish. Oil prices are rising, making electric cars more attractive, and even President Biden is calling for greater adoption of EVs.

But oil is not everything. With the war in Ukraine upset supply chains and the Federal Reserve about to raise interest rates, investors are risk averse and closely scrutinizing unprofitable companies. That’s why there aren’t a lot of options in electric-vehicle stocks.

“Tesla is the only EV company right now that has a performable, viable business,” Steve Sosnick, chief strategist at Interactive Brokers LLC, said in a phone interview. “All others are still concept stocks.”

Speaking of Sosnik, Rivian and Lucid delivered about 1,000 vehicles combined last year. Meanwhile, Tesla sold nearly one million vehicles in 2021.

A few months ago, the Rivian was being touted as the next Tesla, with a market value larger than that of Ford Motor Co. Yet last week’s revelations that the electric pickup-truck maker is raising prices due to higher costs plunged its stock as a result of component shortages. Shares fell 30% from Tuesday to Friday, even though the company retraced those hikes, and are down more than 70% from November’s peak, wiping out more than $100 billion in value.

After lowering its production target for 2022, Lucid dropped 14% on Tuesday, saying it was facing “extraordinary” challenges with logistics and its supply chain. The stock continued to fall during the week and is now down 59% from its November high.

hard bet

“Small emerging EV makers are at a disadvantage due to a lack of manufacturing process experience,” said Charles East, senior equity strategy analyst at Truist Advisory Services. The challenge is especially acute for EV newbies, who need to ramp up production and sell cars to slow their cash burn, East added.

Tesla hasn’t been immune to supply chain issues, but Elon Musk’s company has so far managed to navigate the challenges better than peers. On Friday, the company’s factory in Germany was approved, and on Thursday Japanese national broadcaster NHK reported that Panasonic Corp. is planning to build a US factory to make lithium-ion batteries for Tesla.

While the company’s shares are down more than 20% this year, Tesla still commands a massive market capitalization of $866 billion and is the fifth-largest stock on the S&P 500 index. Its price relative to projected gains has been cut in half over the past three months, but it’s still trading at 79 times earnings over the next 12 months — more than three times the Nasdaq 100 average.

This poses a dilemma for investors. Tesla remains a difficult bet because of its valuation, volatility and the risk of competing EVs getting in the way of other companies. But if you want to bet on electric vehicles, in many ways it’s the only game in town.

“I don’t think there’s any real Tesla-beater on the medium-term horizon,” said David Jones, chief market strategist at Capital.com. “In an ideal world you’d have a mid-range priced car with no charging infrastructure. Out there. No one else does.”