In an otherwise lackluster economy amid coronavirus jitters, the electric vehicle (EV) space is one of the few sectors that is witnessing meteoric growth lately. Climate change concerns, stricter emission rules, favorable government regulations and improvement in EV infrastructure on the back of superior technologies are fueling demand.
EV stocks including Tesla TSLA, NIO Inc. NIO, Nikola NKLA and Workhorse Group WKHS have dazzled Wall Street as the excitement surrounding green vehicles is soaring with each passing day.
Despite the fact that the overall auto sector is suffering from coronavirus woes, EV stocks are experiencing huge gains as investors are betting big on the future of e-mobility. Shares of Tesla, NIO and Workhorse have registered triple-digit gains of 117.6%, 397.7% and 616.1%, respectively, over the past three months.
Electric-truck startup Nikola has been on a roll since it joined Nasdaq after a reverse merger with VectoIQ on Jun 3. The stock has risen 59.6% since then.
The alarming question is have EV stocks rallied far beyond a reasonable price and entered the bubble territory? Well, many analysts believe so. The stunning gains in the stock price of these EV makers have pushed their market values exuberantly. With the eye-popping gains, the stocks’ valuation has got out of hand.
Lofty Valuations Raise Red Flags
Recently, Tesla’s market capitalization rose above Toyota’s TM. The carmaker is now worth more than many of its peers combined, including General Motors, Ford, Fiat Chrysler, Volkswagen, Honda and BMW. Optimistic investors are betting on Tesla taking over the automotive world, but this enterprise still has a long way to go. It should be noted that Tesla is yet to post an annual profit. Also, Tesla sold its 1 millionth car in March, which is less than 10% of what Toyota sells annually. Many Wall Street analysts have been raising alarm that Tesla is overvalued. Earlier this year, even Tesla’s CEO Musk said that he believed that the firm’s share price is too high. Notably, Tesla’s current EV/EBITDA stands at 91.86X, way higher than the industry’s 19.24X.
Seemingly, investors are piling on EV stocks based on the current hype and promises but are overlooking the companies’ financials. Despite Workhorse’s 50.67% year-over-year fall in revenues in 2019 and high debt levels, investors seem to be in love with the stock, as is evident from the price gains. Notably, Workhorse’s current EV/EBITDA stands at 142.52X, way higher than the industry’s 5.48X.
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