Even Rivian, seen by many auto experts as the most promising Western electric car company, is not immune to the boom and bust cycle taking place in the electric car market. But experts say this is typical when new industries emerge.
The sharp drop in electric vehicle stock prices may be typical of booms and busts. New industries excite investors with the opportunity to ride a financial rocket into the stratosphere of wealth, but some companies going public may not otherwise be in less enthusiastic times. The 2000 dot com collapse is one of the most frequently cited examples.
Although no new public electric car company has been convicted of fraud so far, the fraud is actually a model for stock market bubbles, according to William Quinn, a lecturer at Britain’s Queen’s School of Management who studies stock market bubbles. He referred to the British bicycle bubble of 1890 when hundreds of new bicycle companies were listed on the stock market at excessive valuations. Almost everyone went bankrupt within a few years.
David Kirsch, a University of Maryland business professor and co-author of Bubbles and Breakdowns, said he expects some electric car startups to survive but many to fail. “Stories unravel,” Kirsch told CNN Business.
American electric car companies aren’t the only ones downgrading their ratings. Electric vehicle startups in China have also had success. Nio is down 49% this year, X-Peng is down 52% and BYD is down 17%. Even Tesla, the world’s most valuable automaker, was not immune; Its stock is down 27% this year.
Kirsch sees falling stock prices for companies wanting to rival Tesla as evidence of how difficult it can be to turn startups that inspire investors with a story into companies that prove themselves on paper with revenue and profits.
“Some of these companies are somehow exposed,” Kirsch said. “There is a saying, when the tide goes out, you see who isn’t wearing a bathing suit.”