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You might think that the IPO of electric-truck wunderkind Rivian Automotive Inc — with its valuation soaring past $100 billion on zero revenue — perfectly captured the madness in autos in 2021. It was actually Rivian’s first quarterly results, when the company said it would miss its production target by “a few hundred†vehicles. Ever alert to any ripples in its finely-tuned discounted cash flow model, the market promptly dinged the stock by 10%, or $9 billion, in a day.
2021 was a weird year for auto stocks. There’s the obvious stuff, such as Rivian’s market cap. And there’s always Tesla Inc. Elon Musk’s electrified juggernaut raced past $1 trillion in market cap and then fell back below it as the Time Person of the Year sold $11 billion or so of his own stake to pay taxes — after he conducted a
Twitter poll and insulted several senators, naturally.
The not-so-obvious stuff concerns those dinosaurs making the gas-guzzlers we still mostly use, the likes of Ford Motor Co and Toyota Motor Corp Far from being shuffled into oblivion by Musk and the other upstarts, traditional automotive stocks also caught a bid.
Which leaves us with an interesting outcome: What was, just before the pandemic, a roughly $1 trillion global auto sector is now valued at almost $3 trillion.
This isn’t how things are supposed to play out in the great electric vehicle transition. The pure EV players are meant to gobble up an increasing share of the auto market and, alongside that, the stock market, displacing traditional cars and the companies that make them. Instead, with electric models at only about 7% of global auto sales, EV stocks have already taken half the market cap. More accurately, they’ve added on half the market cap. As analysts at Evercore ISI pointed out in a report in November, no one’s been displaced and the entire pool has roughly tripled in size.
Accounting for half of this expansion is Tesla’s staggering 12-fold increase in market cap. Other established EV makers have also jumped; China’s BYD Co. Ltd., a favorite of Warren Buffett, has surged by roughly $100 billion — almost sevenfold. And EV newcomers such as Rivian, Lucid Group Inc. and XPeng Inc have added almost a quarter of a trillion dollars via IPOs.
Yet the old guard has played its part. Ford has more than doubled in value, while General Motors Co. is up by more than half. Toyota, which at the end of 2019 sported the largest market cap in the industry, has nearly doubled, while South Korea’s Hyundai Motor Co. and Kia Corp have both jumped by at least 75%. The big European manufacturers haven’t enjoyed such stellar gains but are still up by about 20-40%.
Tesla is exhibits A-Z of this worldview; bullish sell-side models tend to be larded with future, non-manufacturing businesses, such as robo-taxis.
The bigger risk in the sector lies with those stratospheric EV multiples. Tesla has defied its skeptics — this one included — but its 60-plus multiple still looks vulnerable because it rests implicitly on the company figuring out autonomous driving and such things, and soon. That may be something to watch in 2022 as, with the Cybertruck’s delay, Tesla may be tempted to amp up the robotaxi narrative, as it has in the past. Now, however, hitherto sanguine US regulators seem to be taking a more careful look at the safety of Tesla’s driver-assistance technology. They even seem perturbed about Tesla’s feature allowing owners to play video games while they drive. Imagine that.
—Bloomberg