Climate change, geopolitics, and rising gasoline prices. These are some of the key catalysts driving motorists to consider the electrification of transportation. As well, investors have poured into EV stocks as they chase what could be in their minds the next Tesla (NASDAQ:TSLA).
Up until the Federal Reserve decided to take a decidedly hawkish stance with its monetary policy, the narrative for EVs was a welcoming one. Now, amid a tightening money supply and rising borrowing costs, investors must reconsider prior assumptions.
On paper, the bullish framework for EV stocks initially appears bulletproof. Primarily, a combination of rising inflation and geopolitical disruptions that sent energy markets skyrocketing due to supply crunch implications boded well for the electrification of mobility. However, economic hardships imposed a sharp reality check on this thesis.
Per Kelley Blue Book, earlier this year, the average price of a new EV jumped to $62,876. However, the pre-pandemic U.S. household income was $69,560, indicating that many, if not most, Americans will not be able to make the transition to electric.
For now, the companies undergirding some of the most popular EV stocks have decided to focus exclusively on the affluent consumer base. While this is the most realistic course of action, it begs the question: how do these firms stack up in terms of valuation?
Setting the Framework for EV Stocks
Before moving forward, it’s important to lay the groundwork for the below discussion points. While the concept of valuation can cover several metrics, typically, investors refer to a company’s price relative to earnings. Unfortunately, many of the firms undergirding non-Tesla EV stocks have yet to post positive numbers on the bottom line. Therefore, it may be helpful to consider the price-to-tangible-book value (PTBV).
As of this writing, Tesla features a PTBV of 24.8, which is considered a hefty premium. The automotive industry features a median PTBV of 1.71. For instance, Japanese auto giant Toyota (NYSE:TM) has a PTBV of 1.05. Interestingly, luxury brand Mercedes-Benz Group (OTC:DMLRY) is priced just under 1 for the same metric.
Depending on the consumer base, key financial ratios can vary wildly. Conspicuously, Ferrari (NYSE:RACE) features a price-to-book ratio of 16.3 times while its PTBV is a staggering 145.72. Again, understanding who the key consumer base is can better determine which EV stocks are valued appropriately.
One of the most compelling EV stocks available, Lucid Group (NASDAQ:LCID), initially attracted attention for its focus on some of the wealthiest consumer demographics in the world. For example, its Lucid Air electric sedan starts at a staggering price of $87,400. Those who want to up their game can consider the Air Grand Touring, which tips the scale at $154,000 as an opening benchmark.
Presently, Lucid features a PTBV of 6.62 times, which again is notably above the auto industry median of 1.71. However, compared to Tesla’s PTBV of 24.8 times, LCID stock might appear undervalued.
Fundamentally, investors should consider Lucid’s likely trajectory. With the average price of a new EV nearly approaching $63,000, the only consumers that can afford even garden-variety EVs are wealthy ones. Therefore, LCID may be on the right track, although it is a risky market idea.
Easily one of the most anticipated initial public offerings (IPOs) last year, Rivian Automotive (NASDAQ:RIVN) delighted early bird investors with its attractive product offerings and relatively reasonable price points. However, the company only enjoyed a short-term pop when it debuted in November 2021. Since then, RIVN has been on a downward slide. On a year-to-date basis, the stock hemorrhaged nearly 62% of its value.
Although Rivian’s market losses present significant concerns, an argument exists that RIVN is somewhat undervalued. Currently, its PTBV is 1.81, which may be higher than the auto industry median but is conspicuously below Lucid’s corresponding metric.
Before investors jump on LCID, though, it’s important to realize that the underlying company raised its prices. The R1T, which Rivian originally listed at $67,500, now goes for $79,500. The R1S, which was earlier listed at $70,000, now commands a price tag of $84,500. Therefore, Rivian at least partially lost a key competitive edge.
Another exciting EV-related IPO, Fisker (NYSE:FSR), stands above the other EV stocks in that the company’s prime calling card is its design heritage. That’s not surprising considering that Henrik Fisker, the founder of the auto manufacturer that bears his name, commands global recognition as a premier auto designer. Fisker brought to life several iconic works, including the BMW Z8.
Regarding valuation, Fisker’s PTBV stands at 6.87 times, nearly identical to Lucid, and because of that fact, FSR appears overvalued relative to Rivian. However, it wouldn’t be wise to rule out Fisker just yet.
While beauty is in the eye of the beholder, the upcoming Fisker Ocean SUV embodies a blend of classic European aesthetics with the clean edges of modernity. More importantly, from a financial perspective, consumers can enjoy this world-class design without killing the wallet.
The entry-level Ocean starts at $37,499 while the premium model caps out at $68,999, noticeably below the cheapest offerings of its two competitors above.
Which EV Maker Stands Out?
Among the three EV stocks mentioned above, which one offers the best deal for prospective investors? Primarily, it comes down to personal risk-reward profiles. Those who gravitate toward traditional financial metrics will likely be interested in Rivian for its relatively low PTBV. However, forward-looking investors may see tremendous future value in Lucid’s premium-label brand. Finally, Fisker stands somewhere in the middle, offering a speculative profile but also delivering the lowest-cost products.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.