Are EV Stocks Overvalued?

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The electric vehicle frenzy, pioneered by Tesla, Inc. (TSLA), has triggered a global automotive evolution. The rising climate change concerns across the world have been one of the key reasons behind the rapid rise of the electric vehicle industry, bolstered by favoring governments.

However, with the global economy currently grappling with one of the worst recessions in modern history, the automobile industry is currently in a slump. Consequently, without adequate earnings and revenue growth, EV stocks are presently trading at surmounting valuations, raising concerns regarding a potential asset bubble. 

The EV Growth Trajectory 

Most developed countries have levied a fuel-powered vehicle ban in order to promote the usage of electric vehicles among the masses. The United Kingdom announced a ban on the sale of new fossil fuel-driven cars by 2030, while several regions in the United States and Canada have set the deadline for 2035. Norway aims to be the first company to phase out the sale of fuel-powered by 2025. 

Two of the world's biggest emerging economies, China and India, also aim to curb the automobile industry's fuel-dependent segment within the next couple of decades. China has announced its plans to implement the ban in 2035, while India aims to ban two-wheeled fuel-driven vehicles starting 2025. Accounting for approximately 37% of the global population, an EV boom in the South Asian giants can accelerate the EV industry tremendously. 

 Apart from this, governments have announced direct cash benefits and subsidies, as well as tax credits on EV purchases. Transport Canada currently offers a C$2000- C$5000 direct subsidy on EV purchases under its National Purchase Incentive program for zero-emission vehicle sales. The United States announced federal tax credits of up to $7500 on certain electric vehicle brands. 

At the individual level, the rising demand can be accrued to the increasing awareness regarding climate change across the world. Although the higher initial cost of investment while purchasing an EV might seem like a disadvantage, it is offset by the significantly lower cost of operations and maintenance compared to traditional vehicles. 

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Disclaimer: All the information in this article - is published in good faith and for general information purpose only. Hashtag Investing does not make any warranties about the completeness, ...

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