Even Rivian, considered by many auto experts to be the most promising Western EV startup, isn’t immune to the boom and bust cycle unfolding in the EV market. But experts say that’s typical of the emergence of new industries.
Sharp declines in the price of electric vehicle stocks can be typical ups and downs. New industries that are exciting investors with the potential to ride a financial rocket into the stratospheres of wealth, but some companies going public might not otherwise in less enthusiastic times. The bust 2000 dot com is an oft-cited example.
Although no new public company involved in electric vehicles has been found guilty of fraud to date, the fraud is indeed typical of stock market bubbles, according to William Quinn, a senior lecturer at Britain’s Queen’s Management School. who studies stock market bubbles. He pointed to the British bicycle bubble of 1890 when hundreds of new bicycle companies went public at excessive valuations. Almost all went bankrupt within a few years.
David Kirsch, a business professor at the University of Maryland and co-author of the book “Bubbles and Crashes,” said he expects some electric vehicle startups to survive, but many to fail. “Stories unfold,” Kirsch told CNN Business.
US electric vehicle companies aren’t the only ones to see their valuations slashed. Chinese electric vehicle startups have also taken a hit. Shares of Nio have fallen 49% this year, while X-Peng is down 52% and BYD’s has fallen 17%. Even the world’s most valuable automaker, Tesla, has not been spared; its declining stock is 27% this year.
Kirsch sees the falling stock prices of companies that want to rival Tesla as evidence of how difficult it is to turn startups that inspire investors with a story into companies that prove themselves on paper with revenues and profits.
“Some of these companies are exposed in a certain way,” Kirsch said. “There’s a saying, when the tide goes out, you see who’s not wearing a bathing suit.”