MARKET Watch
by Romulus at Grok TradePoliticians talk, it’s what they do best. Last week, President Biden talked about increasing the number of electric vehicles sold in America, then signed an executive order that pushes for half of all vehicles sold by 2030 be electric. This would amount to roughly nine million vehicles a year. This order is being passed down as new rules for the industry, which should have sparked a wave of buying in all related stocks.
That’s not what happened, though.
Tesla, broke nicely above $700 a share last Monday, fell back below $700 after the news. Blink, NIO, Ride, Nikola, not one of the more popular electric vehicle stocks rallied after the Biden announcement. That may seem strange at first. That strange feeling dissipates, however, when you look at this through the lens of the stock market. The market attempts to see 6-8 months into the future. Once you become more comfortable with that concept, you will see your portfolio enjoy a more consistently upward rise.
BLNK is a great example of this. The company makes electric vehicle charging equipment and helps build charging stations all over the world. They have been doing this for 12 years with a cumulative result of over 30,000 stations in dozens of countries. After the election in November, BLNK stock went on a tear, going from $9 a share to over $64 by the end of January. It has been cut in half since then, even falling another 4% on Friday.
QuantumScape is a new-age firm working on solid state lithium batteries. This is a different twist on current lithium-ion batteries and the word from QS is this new battery will allow for further distance and much faster charging times. This stock also got whacked in the spring, dropping from a high of $132 last December to $22 now.
There are others. Nio, which is a Chinese based electric vehicle maker, and the big dog Tesla, are both hovering around their 200-day moving averages without much net progress for several months.
It doesn’t matter which company is being discussed. If it is in the electric vehicle space, it is not enjoying a good run in the stock market this quarter.
Not only are the stock prices acting in a similar manner, the explanation is the same. Big investors knew after the election that Biden was going to enact this executive order. They bid the stocks up quickly, then reality set in as people began to realize how long this transition is going to take.
Investors may talk a big game about ESG investing (environment, social and government), but they want to make money first. According to a recent CNBC poll, investors would rather buy a traditional oil stock that gives them a 20% return than an alternative energy company that only returns 15%.
An additional problem for the electric group is how far the stock prices went ahead of the fundamentals of the business. This is called "pricing in" the future. Tesla is the most highly valued car maker in the world. The company has a lot of cool technology with lots of bells and whistles, but the bottom line is that it is still a car maker. All the major manufacturers are releasing electric vehicles at a rapid pace. There are at least seven companies in China that make good electric cars. It will be a long time before Tesla can answer to their $700 billion valuation.
BLNK is also fully valued for a perfect execution of their business model for the next year or two. The company has a $1.5 billion market cap, but it is only going to do $40 million in revenue in the next 12 months. QS is even more out of whack. This company has a $9 billion market cap and will not do a single dollar of revenue until 2024.
Tesla has proven that investors can make money in the electric group, and their stocks will provide plenty of action both up and down. Eventually, a handful of these companies will survive and experience large stock runs, but it is going to take a long time. In cases like this, it pays to be mindful of the shorter-term hype and the true long-term potential.
Remember:
Wealth, like Rome, cannot be built in a day. But like Rome, it can be lost in a day.
Watch for future announcements from Romulus about profitable market moves, important indicators, and major market swings. For trading education or to trade your portfolio with Romulus, contact John Reed at john@groktrade.com or go to http://www.groktrade.com/grow-wealth.
About the author: In his real-life existence, Romulus started on Wall Street in 1994 and traded for a hedge fund for 13 years. For the past 12 months he has been working with investors and traders to actively manage their portfolios by growing wealth, not risk, as a teacher and mentor working with Grok Trade, a stock trading educational company in business since 2007.
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