(Bloomberg) — Gone are the days of starry stock market debuts that sent valuations of electric-vehicle makers soaring. Now, floating an EV stock is only for the brave.
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A torrent of bad news for the sector this week confirms how far it has fallen in just a few years. First Renault SA scrapped an initial public offering of its EV and software arm Ampere citing valuation concerns. Then, Bloomberg reported Volkswagen AG has put efforts to seek outside investors for its PowerCo battery unit on the back burner.
It’s a sharp turnaround from the heady days of the pandemic when investors were clamoring for exposure to the growing sector. Up-and-coming firms like Rivian Automotive Inc. and Vietnam’s VinFast Auto Ltd. once surpassed more established rivals like General Motors Co. by valuation. Rivian’s value hit $153 billion at one point.
Now analysts are slashing their earnings forecasts for the EV sector as sales growth slows.
Read More: EV Stocks Are In Shambles Everywhere You Look
EV shares have now tumbled from their peaks, with Lucid Group Inc. and XPeng Inc. losing more than 80%. The Ampere offering was expected to be one of the biggest this year in Europe, with Renault Chief Executive Officer Luca de Meo seeking a valuation of as much as €10 billion ($10.8 billion) for the business — almost on par with Renault’s market value.
“When they first quoted the $10 billion valuation for Ampere, the EV bubble was in peak mode with VinFast trading as second largest automaker on the planet,” said Mark Taylor, a director at UK broker Panmure Gordon. “Times have changed rapidly.”
These charts show how the EV stock bubble burst, and why the pain might have further to run.
Debut Big, Then Fail
Almost all EV stocks that got listed via IPOs or merging with special purpose acquisition companies in the last five years are now trading lower than the price they were initially valued at.
Historic Selloff
Rivian, Lucid, Xpeng have all fallen nearly 90% from their peak. Following their listings, the combined total valuation of the three firms was bigger than all of the traditional carmakers. Rivian alone beat VW at one point.
Higher borrowing costs, a sluggish economy in parts of Europe as well as the end of EV incentives in countries like Germany have been hitting growth for the sector.
Still Expensive Versus Peers…
The Bloomberg EV stocks index shows companies are trading at a high premium to traditional carmakers even after falling hard in the last few years. That typically suggests the sector can correct further.
Notably, the earnings forecasts for the index have been slashed 37% in the last one year. BYD Co.’s shares slumped on Tuesday after steep year-end discounting to meet its 2023 sales goals hurt the Hong Kong-listed firm’s earnings. Though EV adoption in China is relatively advanced, the government ceased handing out national subsidies last year, which contributed to the outbreak of a price war in the world’s largest auto market.
Shares of Tesla Inc. still trade at 58 times forward earnings, almost three times the S&P 500 Index, despite a slump earlier this month after the world’s largest EV maker by market value warned about slowing demand. The firm has been slashing prices of its cars and last week warned of “notably lower” growth this year.
…And Versus Sales
Enterprise value-to-sales ratios have fallen back, but EV makers are still trading at more than a 100% premium to the broader global autos index. Bloomberg Intelligence is predicting overall car sales growth in Europe to slow this year to 5%, from 14% in 2023, in part due to growing pessimism around EVs.
While sentiment is bearish “we see shoes left to drop in a Darwinian struggle for EV viability,” said Adam Jones, an analyst at Morgan Stanley.
“Look for a potential array of announcements from JVs with China EV partners, impairments, delayed capacity expansion, carve-outs and horse-trading with regulatory bodies to possibly reset ‘unrealistic’ EV targets,” he added.
–With assistance from Albertina Torsoli and Alexandra Muller.
(Updated with China subsidies in 12th paragraph. A previous version was corrected to remove references to $100 billion in the headline and first paragraph.)
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