Tesla and other EV stocks a car crash for investor returns

“Tesla: Has the Time of Reckoning Come?” was the title of a note released by Research Affiliates last week. A better title would have been: “I told you so.”

It pointed out that, two years ago, Research Affiliates founder Rob Arnott warned the electric vehicle (EV) market was a “classic example” of the “big market delusion”. The “big market delusion” is an academic term referring to when all companies in an evolving industry rise together, even though, as competitors, some will win and some will inevitably lose. Almost all EV stocks – not just Tesla – were sporting astronomical valuations. It wouldn’t last, Arnott warned.

And it didn’t. Research Affiliates notes that since mid-2020, 18 EV stocks went public with valuations ranging from $1 billion to over $100 billion. Only one has seen its share price advance since its initial public offering (IPO). The remaining 17 are down from their IPO prices by a median of 87 per cent.

“That’s a lot of wealth destruction”, says Research Affiliates. It sure is – and EV investors can’t say they weren’t warned.