Even Rivian, which many automotive experts see as the most promising Western electric vehicle startup, is not immune to the boom-and-bust cycle taking place in the electric vehicle market. But experts say this is typical of when new industries emerge.
Sharp price drops in electric vehicle stocks can 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 publicly traded companies might not do otherwise in less enthusiastic times. The dot-com bust of 2000 is an oft-cited example.
Although no public company involved in electric vehicles has been convicted of fraud to date, the fraud is in fact typical of stock market bubbles, according to William Quinn, a professor 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 were listed on the stock market at excessive valuations. Almost all of them 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 hopes some electric vehicle startups will survive, but many will fail. “The stories are falling apart,” Kirsch told CNN Business.
US electric vehicle companies are not the only ones seeing their valuations reduced. Chinese electric vehicle startups have also been affected. Nio shares are down 49% this year, while X-Peng is down 52% and BYD is down 17%. Even the world’s most valuable automaker, Tesla, has not been immune; its stock drop is 27% this year.
Kirsch sees the falling share prices of companies wanting to rival Tesla as evidence of how difficult it is to turn startups that inspire investors with a history into companies that prove themselves on paper with income and earnings.
“Some of these companies are exposed in some way,” Kirsch said. “There’s a saying, when the tide goes out, you see who isn’t wearing a bathing suit.”