Pricing Power is Key for EV Makers
It’s funny how a few days of high gas prices can make everyone bullish on electric vehicles. The ongoing war in Ukraine recently sent the price of crude oil soaring to multi-decade highs, but since then, it has fallen back down by over 25%. Always remember that the market is rife with overreactions in both directions. Electric vehicle investors know this all too well as it was just last year where any company or IPO with the letters EV in the name would skyrocket out of the gate.
Well, I’m here to burst another EV bubble: electric vehicles aren’t the answer, yet. That’s not exactly the entire truth, but just because the price of oil is rising, it doesn’t mean electric vehicle makers aren’t having their own issues. Just this week, Tesla (NASDAQ:TSLA) and Warren Buffet-backed BYD, two of the largest EV makers in the world raised the prices on their vehicles. Why the sudden price hike? Electric vehicles don’t just take electricity to operate.
There are plenty of other materials that go into the production of an EV that are themselves rising in price. One great example of this is nickel which is used extensively to create batteries for EVs. Another are rare earth materials, which is another industry seeing the effects of a throttled global supply chain. Tesla and BYD have the brand power to pass these price hikes onto their consumers. This allows the companies to somewhat maintain their profit margins during times of distress.
EV Startups Are Not as Lucky
Which leads us back to EV makers without the same reputation as Tesla. Lucid (NASDAQ:LCID) and Rivian (NASDAQ:RIVN) both cited supply chains and rising costs of materials as reasons why production figures will be cut in 2022 and quite potentially further into the future. For a company like Lucid that is already having difficulty pushing its $150,000 luxury EVs, it doesn’t leave much room for further pricing power meaning its margins will likely take a hit. Rivina had the right idea about raising prices, but of course we know how poorly the company executed that idea.
If you want to invest in electric vehicles, you’re best going for blue-chip companies like Tesla, BYD, and even Nio (NYSE:NIO). Personally, I’m not quite sold yet on General Motors (NYSE:GM) or Ford (NYSE:F), but I can see the appeal. Nio has its patented battery swap technology, several new models coming this year, and a new production plant that will double its annual capacity. This market is not the environment to be taking risks on companies that look far different than they did during their over inflated IPOs.
Don’t get me wrong, I’m still bullish on EVs. Even Cathie Wood recently stated that the demand for fossil fuels is already dying, and yet you don’t see Wood loading up on Lucid or Rivian. I’d wait for dips in stocks like Tesla or Nio, but I’m not going crazy buying every dip. As transcendent as electric vehicles are, the industry is still going through its growing pains. The ongoing pandemic and geopolitical tensions around the world are showing us that the young industry can easily be sent off the rails. Electric vehicles are undoubtedly the future of the automotive industry, but there is almost certainly more pain ahead for these companies and their stocks.
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