Rivian shares were under pressure, but with a market capitalization of more than $ 100 billion more than GM and Ford, it is difficult to say whether the electric vehicle was a major success. Elon Musk’s acquisition of former Tesla CEO Peter Rowlinson Lucid Group, which was announced to the public earlier this year and is now estimated at $ 80 billion, has been a major source of momentum for EV shares. It’s as big as the Detroit Stars.

Following President Joe Biden’s re-appointment of Jerome Powell to head the Federal Reserve, the stock market faces a new challenge, leading investors to return to value-added stocks and move away from the hottest bullies. Are EV shares in the bubble?

CNBC recently co-founded Data Truck Research co-founder and former Wall Street automotive industry analyst with Nick Cola on what is happening at EV.

What makes Rivian and market bubbles

According to Colas, Rivian’s estimate is too high. “There is nothing wrong with that. It’s a big deal when you talk about a company that has never sold a product and is worth $ 100 billion, but it’s not necessarily a bubble,” he said.

Tesla itself did not have a market capitalization of more than $ 80 billion until early 2020, according to a recent study by Colas, which at the time was producing 100,000 vehicles per quarter. Rivian is now starting to ship its first customer vehicles.

Rivian R1T electric pickup truck on Wednesday, November 10, 2021, outside the Nasdaq market in New York.

Bing Guan | Bloomberg | Getty Images

Recent investors’ interest in EV stocks and their valuation are reflected in the fact that there is a mismatch between a specific investment demand and demand supply. When too much money is spent on supply where there is no shortage, market bubbles can form. Overall, Kolas is not worried about the stock market booming as the stock market is booming and family savings continue to chase profits. But in the long run, there is a fact that investors are chasing a few names for them.

“Investors are looking for any game in automotive and EVs and there is a real lack of opportunities, and that is why Tesla or Rivian is so respected. There are not enough EV stock there,” he said. “You have to offer what you want to the market or it will create some foam.”

Why Investors Can’t Ignore EVs

Cola, however, is not ready to call a bubble on the EVs. The EVs’ overall ecology is similar to that of the car industry a hundred years ago, which is very fragmented and then took 80 years to break into the big three. “It could be eight years in the EVs,” he said.

And Rivian, at a cost of $ 100 billion, is a company that no institutional investor can ignore.

“They’ve seen what happened in Tesla and they know what’s going to happen here,” he said.

With a market value of $ 100 billion, every institutional investor in the US and around the world should take Rivian seriously. And if Tesla already owns one, investors will have to decide whether to keep all of Tesla or sell some and buy some Rivian.

In a recent memo to his clients, Kolas said, “We have done enough IPOs over the years to find out when some investors are roaming around in new companies, selling their old names and replacing them with new ones.” . There is now competition for the marginalized investor.

EV stocks are less bubble than options.

Rivian is a fresh stock, and is highly volatile, and will continue to be volatile, says Cola, as EV shares are traded as stock options rather than stock.

“It’s an old-fashioned option,” Colas said. “It’s a very successful option in EVs against Rivian. Tesla was the same way in the past, it’s an option for the future.”

Therefore, the recent volatility in the Rivian will be reversed for reasons other than the growth of the federal-value cycle, and investors should keep in mind that options are always more volatile than the underlying stock and that this volatility reduces the market. Great success.

Trading in Tesla Options, for example, is declining from the wider market and other major cap technology companies such as Amazon, according to a recent FT article.

GM and Ford agree on EV equation

Given the volatility in EVs, investors may have to play both sides of the aisle, with some risking the start-ups, including Telsa and Rivian, and inheriting players.

That is what Ford CEO said last week when he announced the cancellation of his deal with Rivian (he is still an investor in the company). Ford CEO Jim Farley cited automotive maker “growing confidence” as a reason to end the partnership.

But the market approach to estimating EV net games higher than Ford or GM is showing the long-term dangers of older cars.

“Heritage cars face some amazing challenges, unprecedented, and the invasion of Japanese and South Korean cars makes it relatively small,” Colas said. “It’s a big technological breakthrough so far that they have solved by building EVs at home and leaving the companies together.”

He does not consider it necessary to comment on such fabrications.

“The way the market is currently evaluating Tesla, Rivian and Lucid Group in relation to Detroit is not a big investment study,” Colas said. He said.

The important thing is that GM and Ford are finally in a position to run EV operations, and that provides a compelling reason to hold on to that stock.

“The two themes have nothing to do with each other and that is one of the possible reasons why you want to own the shares,” he said.

But I’m not sure if Ford or GM will make that move, even if it’s just a case in point.

“GM and Ford still have time left, but a remarkable corporate improvement that reflects the challenges of survival … we are not holding our breath,” Collaus wrote in a recent study note.

Capital Price and the Eve War

If GM and Ford stick to the current organizational structure, Colas will not see a few of them to any advantage and one distinct loss: capital value.

With a market value of less than $ 100 billion for Ford and GM, it is much higher than Tesla’s $ 1 trillion. This is a Tesla stock sale, which means a lot to the EV market competition for the latest Musk action.

If Tesla needed $ 10 billion in capital, it could sell stocks at a 1% dilution to current shareholders for $ 10 billion. If GM or Ford do that, it’s a 10% discount.

“This is a huge difference in capital prices … GM and Ford have combined capital expenditures and are surprisingly high and unsustainable,” Cola said. Because we see a lot of new technologies coming out at a time when the EV industry is having a big tail of mass adoption and all these companies have to invest a ton and big domestic cars are not as good as Rivian. Or Tesla. “

According to CBC News, Tesla is spending at least $ 1 billion on its gigabyte in Austin, Texas.

Electric vehicles refer to the adaptation of autonomous vehicles and international transportation over time. That requires companies to have a high level of equity for M&A and strategic investments.

In a recent memo, Kolas wrote: “Where GM and Ford share prices are now, they bring a knife to the gun battle.”

This is one of the main reasons why Cola is considered an independent review for EV business. “Ford and GM can’t compete with EVs or AVs – they can,” he wrote in a recent memo. “With Tesla and (now) Apple, if they can get a toe-to-toe fair currency, their chances are materially improved.”

The real king of money and the car of the future

When it comes to investing in cars in the future, there are many hypotheses about Apple’s interest. Investors who make about a quarter of Apple’s revenue after a quarter should take Apple into the automotive and electric vehicle market, Colas said.

Apple doesn’t say anything, Tim Cook’s comments about cars are another distraction when asked by Andrew Ross Sorkin at a recent Delbook conference. But last week, when Bloomberg announced that Apple’s car plans were accelerating and that the first work was expected in 2025, Apple was at an all-time high.

“Everyone, except for the money in the account, should pay attention to Apple’s autonomous vehicles and EVs,” he said. “Money does not solve all the problems in R&D, but it certainly helps those you know, so you should take it seriously just because you have the resources to do more than anyone else in the business,” he said. .

GM and Ford are financially sound today, generating cash flow from internal combustion engines. “But what will happen next fall? Or if there is a technological breakthrough in batteries that require a lot more capital?” Kolas wrote in a recent note.

“In those cases, the ‘old’ GM and Ford – with a mix of ICE and EV products and stock prices – are.

According to a recent memo by Kolas on Apple and AVs, investing in a car on the flip side of the crisis is “historically the capital of the world.”

But they argue that it is a huge market that cannot be ignored, and that the new economic model designed from the approach of big technology companies is focused on “transportation as a service”, not necessarily ownership. “This is a revenue model that any technology company will understand and accept.”