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Sourav Pan wrote a post · Nov 14, 2021 16:22

Valuation talk on the electric vehicle high-fliers

The rubber will meet the road in the electric vehicle sector over the next few years as production and sales numbers look to catch up to early valuations.
The EV push is industry-wide with $VOLKSWAGEN AG(VLKAF.US)$ , $General Motors(GM.US)$ and $Ford Motor(F.US)$ setting aggressive targets amid rising demand. The International Energy Agency predicts that consumers globally will be buying 25M electric vehicles a year by 2030 at an average price that is expected to fall dramatically to around $27K per vehicle. Finimize notes that multiplying those two numbers together derives a very rough market size of $675B for the electric vehicle market by 2030.
Even assuming a generous tech-like price-to-sales ratio of 5.5X means global electric vehicles sales of $675B should be worth about $3.7T to investors, observes Finimize's Andrew Rummer. That compares to some current lofty valuations on the books already for $Tesla(TSLA.US)$ at $1.07T, $Lucid Group(LCID.US)$ at $73B, $Fisker(FSR.US)$ at $6.2B, $Canoo(GOEV.US)$ at $2.0B, $Lordstown Motors(RIDE.US)$ at $1.3B, $Workhorse(WKHS.US)$ at $1.1B and now $Rivian Automotive(RIVN.US)$ at $105B. Those names account for about a third of the implied future global market share and would need to fend off Ford, General Motors, $Toyota Motor(TM.US)$, $NIO Inc(NIO.US)$, $XPeng(XPEV.US)$ and all the others from taking more than two-thirds market share to justify the current combined valuation.
Tesla is ahead of the pack in terms of deliveries and profitability, which leads New Street Research's Pierre Ferragu to say there is a way to make sense of the stock moves when looking at share price vs. the expected EPS a year out. "When it revises up, the stock gets towards 100x that. When it exceeds 100x, it corrects back. Looking at EPS two years ahead tells you where the stock may trade a year down the line,' he writes on the trend in the chart below.
Valuation talk on the electric vehicle high-fliers
With that in mind, here is where analysts think the EPS line is heading for Tesla in the years ahead.
Valuation talk on the electric vehicle high-fliers
That EPS check does not work yet work yet for Rivian Automotive, but Loup Ventures analyst Gene Munster has some thoughts.
"While Rivian's valuation is eye-opening, the path to it is understandable. I believe the spike is due to a combination of two things. First, Rivian's partners, which include Amazon and Ford, check a quality box for institutional investors that most public EV companies can't check. Second is the rise of theme investing, of which EVs are especially intoxicating to investors given the rise of TSLA, and to a lesser extent, LCID. Putting it together, it’s the fear of missing out that has further fueled the rise in RIVN shares."
Speaking of buzz and FOMO, a few catalysts to watch this week in the electric vehicle sector are Fisker's showcasing of the Ocean SUV at the Los Angeles Auto Show and the Motor Trend Car of the year awards with the 2022 Lucid Air a finalist. See a full list of all the catalysts to watch next week.
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Sourav Pan
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