Everyone Wants In on That Crazy Tesla Money
Good morning and welcome back to Speed Lines, The Drive’s roundup of what matters in cars and transportation. It’s Wednesday, my dudes. On today’s agenda: EV startups vie to be the “next Tesla,” at least as far as stock prices are concerned; automakers push for the next level of autonomous driving without safety rules to go by; and WeWork’s Adam Neumann is back and in the mobility space. Hooray for all involved.
As we’ve covered throughout the year here on Speed Lines, one of the biggest automotive stories of 2020 has been Tesla’s stratospheric valuation, something that has risen to incomprehensibly high levels. To recap, Tesla is now “worth” more than American Express and Bank of America, and more than Volkswagen, GM, Honda, Fiat Chrysler and Ford combined. Though the auto industry is beset by flagging sales and production issues amid the pandemic, electric vehicles are the way of the future, and Tesla leads the way there.
What that means is that Wall Street investors, always on the hunt for the next Facebook or Amazon to get make them richer, have zeroed in on electric vehicle startups. All of them, no matter whether they produce cars or revenue or have a factory or not. EV semi-truck startup Nikola hasn’t made anything yet, but it was valued as high as $34 billion this summer in moves that made its founder very wealthy overnight.
Everyone wants in on the next big thing, Bloomberg reports, calling the phenomenon “Tesla euphoria.” Here are some examples, emphasis mine:
After Nikola, the most valuable U.S.-listed electric-auto entrant is NIO Inc., the Chinese maker of battery-powered SUVs. Through June, it’s handed over less than 50,000 vehicles in the roughly two years since it started delivering vehicles. But its stock has surged 244% this year.
Then there’s Workhorse Group Inc., which is trying to produce and sell just 400 electric delivery vehicles this year. Its shares started surging in the run-up to Vice President Mike Pence’s visit to a politically significant factory that an affiliate acquired from General Motors Co. and is trying to revive. The stock is up 408% year-to-date.
Investors are rewarding these companies based on their business plans, but Tesla may prove to be the exception rather than the rule when it comes to mass-producing, retailing and servicing vehicles. They face an uphill battle getting the cash they need to compete with Tesla and major carmakers, said Tony Posawatz, a consultant who led development of GM’s plug-in hybrid Chevrolet Volt.
I emphasize that because even Elon Musk will admit as much is true. Starting a car company-or semi-truck company, whatever-is a grueling, capital-intensive business with countless challenges around the sales model alone. Not all of these companies will survive and not all of them will even get to the point where they build actual cars you can buy. When was the last time you set foot in a Faraday Future dealership?
But the craze around EV startups and their stocks will be a trend to watch in 2020, a gamble that at least a few of these companies will pay off in a big way much as Tesla did. One word of caution from that story, however:
“There’s a lot of delirium,” said Aswath Damodaran, a professor at New York University’s Stern School of Business. “Each company is looking up the ladder: Tesla is the next Amazon, Nikola is the next Tesla, and so on.”
Damodaran said he doubts that each new entrant will be able to pull off their growth projections and that the electric-vehicle market is not big enough for every one of the companies to succeed. “We are all now reaching for a dream,” Damodaran said, “and that’s not the way to invest.”
My thinking is that we’ll see a few startups prevail (including Tesla) but the biggest shift to EVs will come from legacy automakers with built-in production infrastructure who move their fleets to battery power over the coming years. But that isn’t as sexy as a small, new company becoming “the next Amazon,” so they’ll have a lot of investor-convincing to do.
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