The EV stock bubble: why I’m avoiding Rivian, Lucid, and Tesla

Edward Sheldon believes electric vehicle stocks are in a bubble right now, due to their high valuations. Here are three shares he’s avoiding.

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While some market commentators have suggested that stocks are in a bubble right now, I don’t think that’s the case. Sure, shares aren’t cheap at present. However, as a whole, they’re not that expensive, considering the growth that some companies (eg Big Tech) are generating.

Having said that, I do believe bubbles have formed in some areas of the market. Electric vehicle (EV) stocks is one such area. In my view, this sector is extremely overvalued. With that in mind, here’s a look at three EV stocks I’m avoiding right now.

Rivian

Let’s start with Rivian Automotive (NASDAQ: RIVN). Its Initial Public Offering (IPO) last week represented the largest US listing since Facebook in 2012. Since the IPO, Rivian’s share price has spiked up, giving the company a market capitalisation of a whopping $127bn.

Now Rivian does appear to have some great vehicles. It also has the backing from Ford and Amazon and a load of pre-orders, so it’s clearly doing something right.

However, a $127bn valuation just makes no sense, to my mind. For starters, Rivian is not even generating any meaningful revenues yet. Secondly, the company is up against some massive players, such as Ford and GM.

I’ll point out I’m not the only one who thinks the stock’s overpriced. Last week, ARK Invest portfolio manager Cathie Wood – who is known for buying expensive growth stocks – reportedly said she wouldn’t be buying Rivian right now due to its rich valuation.

The fact that Rivian is too expensive for Wood suggests the valuation here is sky-high.

Lucid

Another EV stock I’m going to avoid due to its high valuation is Lucid (NASDAQ: LCID). Its share price has been on fire recently and, as a result, the company now has a market-cap of around $73bn.

Like Rivian, Lucid has a great product. Its flagship model, Air, is a beast of an EV that can go from 0-60mph in just 2.5 seconds and has a range of 520 miles. Given its specs, the Air could capture market share from Tesla.

However, the $73bn market-cap here looks a little ‘off’ to my mind. Right now, Lucid has only sold a handful of cars. And at the current valuation, the stock has a price-to-sales ratio of an eye-wateringly high of 42. That valuation adds a lot of risk.

Morgan Stanley analyst Adam Jonas still has a price target of $12 here. That implies downside of nearly 75%.

Tesla

Finally, Tesla (NASDAQ: TSLA) is the third EV stock I’m going to avoid due to its high valuation. At its current share price, it has a market cap of over $1trn.

While Tesla is a great company, I don’t think it’s worth $1trn+ right now. When I look at the other US mega-cap companies with similar valuations, I see companies that have very dominant market positions and highly-scalable business models. Tesla is very different from these companies. Given the number of automakers globally, it’s unlikely to be able to maintain a dominant market share. Meanwhile, as a manufacturing company, its business model isn’t as scalable.

Now, of course, the Tesla story isn’t just about EVs. This company is also a leader in the autonomous vehicle space. If Tesla can develop full self-driving technology, its revenues could skyrocket.

However, right now, I think the valuation has gotten ahead of itself.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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