Stocktake: Electric car investors suffering from the ‘big market delusion’

Tesla shares have been pummelled lately but the stock still looks incredibly expensive, as do other electric vehicle (EV) makers. EV investors, says Research Affiliates founder Rob Arnott, are suffering from the "big market delusion".

The “big market delusion” is when all companies in an evolving industry rise together, says Arnott, although as competitors some must win and some must lose. Between January 2020 and January 2021, the total market value of eight electric carmakers tracked by Arnott had risen by 618 per cent, to $1 trillion (€840 billion) – almost as much as the $1.1 trillion (€920 billion) combined value of traditional automakers.

Huge winner

Tesla accounts for the bulk of that figure, but EV stocks everywhere soared – all eight of the EV makers more than doubled over the year. Three rose more than tenfold.

Indeed, some even make Tesla look cheap. Electra Meccanica is priced at 600 times sales while XPeng and Li Auto are priced at 47 times and 52 times sales respectively, almost twice that of Tesla. In contrast, the average traditional automaker trades on 1.1 times sales.

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One of these stocks may well be the Apple or Google, but they cannot all become the next Apple or Google. The simple reality, says Arnott, is not every company can be a huge winner.