While many growth-stage tech companies currently sport steep valuations, electric car makers are one group of firms whose market caps especially seem detached from any kind of sober analysis of the future profits and cash flows they can be expected to produce.
And Tesla (TSLA) , $418 billion market cap and all, might be far from the worst offender here.
While Elon Musk's company is certainly richly valued, it is nonetheless the clear market leader -- one with a well-known brand and major technology and manufacturing strengths. Though one can take issue with Tesla's market cap, odds are pretty good that the company will be selling a lot of cars 5 or 10 years from now.
By contrast, it's far from certain that many of the other electric car makers that investors have fallen in love with, and which will be competing with Tesla, incumbent auto giants and each other, will be high-volume automakers several years from now.
This group includes U.S. startups such as Nikola (NKLA) ($8.5 billion market cap, admittedly both a hydrogen and electric vehicle developer), Fisker (FSR) ($4.6 billion) and Lordstown Motors (RIDE) ($4.1 billion), none of which for the moment are producing any revenue and all of which will have to square off against offerings from both Tesla and auto incumbents.
And to some degree, it also includes Chinese firms such as Nio (NIO) ($63.5 billion market cap), Xpeng ($31.5 billion) and plug-in hybrid maker Li Auto ($29.3 billion).
Unlike the U.S. startups, the Chinese firms are currently selling cars in volume, and at premium prices no less. Nio, which posted its Q3 report on Tuesday afternoon, delivered more than 12,000 vehicles in Q3 and has guided for 16,500 to 17,000 Q4 deliveries. Xpeng delivered more than 8,500 vehicles in Q3 and is guiding for 10,000 Q4 deliveries.
However, as others have noted, these companies have only seen limited competition to date in China's premium EV market, and that will be changing shortly.
Tesla, which has already begun making its Model 3 sedan at its Shanghai plant, will soon be making its Model Y crossover there as well. And notably, it's set to be priced well below Nio's ES6 crossover, which starts at $54,000 and will arguably be its biggest rival within China.
Auto incumbents such as BMW and Toyota's Lexus are also entering the Chinese premium electric car market, and so are local players such as Berkshire Hathaway-backed BYD. And while the likes of Nio and Xpeng do have ambitions of being major overseas players, that's very much a wait-and-see story, given both the competitive backdrop and the fact that (judging by reviews) their cars might need some adjustments to better appeal to the tastes of foreign car-buyers.
Meanwhile, Nio and Xpeng are still reporting substantial losses -- Nio just reported a $147 million Q3 net loss excluding stock comp -- and their gross margins are for now well below Tesla's. Whereas Tesla had a 23.7% Q3 automotive GM excluding regulatory credits, and a 19.9% company-wide GM excluding credits, Nio just reported a 14.5% vehicle GM and a 12.9% company-wide GM in spite of its high-end pricing. Xpeng, whose vehicles are somewhat cheaper, posted a Q3 GM of just 4.6%.
In some ways, the current electric vehicle craze brings to mind the 2007/2008 fervor surrounding solar stocks, as well as the 2012/2013 mania surrounding 3D printing stocks. In each of those cases, investors got carried away by the hype surrounding a technology that (while having been around for a while) was seeing penetration rates inflect.
And while the technology in question was more than just hype, those who bought the most popular names at the peak of the fervor -- think firms such as First Solar (FSLR) and SunPower (SPWR) in 2007/2008, and firms such as 3D Systems (DDD) and Stratasys (SSYS) in 2012/2013 -- wound up getting burned pretty badly, as growth rates failed to match investors' high hopes and the competitive environment proved tougher than expected.
Only time will tell if the stock charts of companies such as Nio and Xpeng end up resembling those of a First Solar or 3D Systems, each of which remain far below their all-time highs. But it's worth staying mindful of the parallels between the current hype surrounding a hot technology that's seeing adoption grow rapidly and some past manias.