Even Rivian, which many automotive experts view as the most promising Western electric vehicles startup, isn’t immune from the boom-and-bust cycle that’s playing out in the electric vehicles market. But experts say this is typical of when new industries arise.
The sharp price drops in electric vehicle stocks may be typical of booms and busts. New industries that excite investors with the opportunity to ride a financial rocket into the stratospheres of wealth, but some companies that go public might not otherwise in less enthusiastic times. The 2000 dot com bust is an often-cited example.
Although no newly public companies involved with electric vehicles have been convicted of fraud to date, fraud is indeed typical of stock market bubbles, according to William Quinn, a lecturer at Queen’s Management School in Britain who studies stock market bubbles. He pointed to the British bicycle bubble of 1890 when hundreds of new bicycle companies were listed on the stock market at excessive valuations. Nearly all went bankrupt within a few years.
David Kirsch, a University of Maryland business professor and co-author of the book, “Bubbles and Crashes,” said he expects some electric vehicles startups to survive but many to fail. “The stories are unraveling,” Kirsch told CNN Business.
US electric vehicle companies aren’t the only ones to see their valuations reduced. Chinese electric vehicles startups have taken a hit, too. Nio’s stock has fallen 49% this year, while X-Peng is down 52% and BYD’s has dropped 17%. Even the world’s most valuable automaker, Tesla, hasn’t been immune; its stock down is 27% this year.
Kirsch views the falling stock prices of companies that wish to rival Tesla as evident of how difficult it is to turn startups that inspire investors with a story into businesses that prove themselves on paper with revenue and profits.
“Some of these companies are being exposed in a way,” Kirsch said. “There’s a saying, when the tide goes out, you see who isn’t wearing a bathing suit.”