Since the turn of the month, markets have been quiet. Almost too quiet you might say. After several percentage point gyrations in the key indices over March as new data flowed daily on vaccination rates, Covid case levels and US fiscal stimulus, everything seemed to calm down. Hell, even the VIX has dipped below 20.
So we thought it an opportune time to revisit our EV bubble spreadsheet from mid-January, which we’ve been updating fortnightly since we cobbled the document together one winter afternoon.
There are 1125 words left in this subscriber-only article.
Start your free 14-day trial today!
Now, as FT Alphaville probably knows better than most, calling anything a bubble can be acutely embarrassing when the asset in question — whether it be the Austrian century bond or Wayfair’s equity — continues to march higher. Yet this time, we arguably nailed it.
At pixel time the losses from their respective peaks from all of the electric vehicle, battery and charging companies on our list total some $635bn of market capitalisation, or a fall of just under 38 per cent. Ouch.
A lot of the cooling in the sector can be explained away by wishy-washy market commentary such as a change in investor sentiment, more buyers than sellers, and, more specific to the recent market action, boredom.
Within the generally deflationary market action, however, there has been idiosyncratic situations. XL Fleet, an electrical drive system company, found itself in the sights of noted activist short seller Muddy Waters, while similarly nascent electric vehicle maker Lordstown Motors took a hit from Nikola-slayer Hindenberg Research. Both stocks have more than halved from their respective peaks.
Perhaps the biggest surprise though, is how well the traditional automakers have done. Cast your eyes down to the bottom spreadsheet, and you’ll see that over the past 90 days, General Motors, Ford, BMW, Volkswagen and Daimler are the best five performing stocks out of the entire group. Very few investors, including FT Alphaville, would have suspected as much back in January.
It feels strange to say, but perhaps buying solid car companies with established brands and manufacturing expertise at low valuations works after all?
The explanation for this is pretty simple, methinks. It is simply a part of the equity rotation from unprofitable growth to value as bond yields rise:
My own view is the rout has further to run as yields rise another leg.