Tesla’s shares fell by more than 14% on Tuesday, after plunging by 65% in 2022. In early 2021 we warned investors of a pricing delusion in “the big new EV market” and predicted that amidst skyrocketing market value and soaring valuation metrics, with time the total value of the industry would recede to more sensible levels. Has the time of reckoning come?In our 2021 paper titled “Big Market Delusion: Electric Vehicles,” we made the following conclusions:• In the highly competitive and capital-intensive auto industry, the January 2021 valuations of electric vehicle manufacturers are unlikely to be sustainable over the long term.• The majority of the increase in the industry’s market-cap resulted from a rise in the market capitalization of Tesla, which by January-end 2021 was in the top 10 companies in the world by market value.• To justify its astronomical valuation levels, Tesla must grow by an order of magnitude while increasing its margins at the expense of competitors.• Notably, the pricing delusion was not exclusive to Tesla: Tesla’s valuation multiple of sales at the time was only a fraction of the multiple of some of its competitors, many of whom have fared far worse.
Finally, as we survey the landscape, here are a few additional observations:
