Even Rivian, considered by many automotive experts to be the most promising western EV startup, is not immune to the boom and bust cycle that plays out in the EV market. But experts say it’s typical of emerging industries.
A sharp drop in the price of electric vehicles can be typical of booms and busts. New industries that excite investors with the opportunity to fly a financial rocket into the wealth stratosphere, but some companies that go public might not be otherwise in less enthusiastic times. The dot-com crash of 2000 is an oft-cited example.
While no new public electric vehicle company has been convicted of fraud so far, fraud is indeed typical of stock market bubbles, according to William Quinn, a teacher at the Royal School of Management in the UK who studies stock market bubbles. He pointed to the British bicycle bubble of 1890, when hundreds of new bicycle companies were listed on the stock market at an overvaluation. Almost all went bankrupt within a few years.
David Kirsch, a business professor at the University of Maryland and co-author of Bubbles and Crashes, said he expects some electric vehicle startups to survive but many to fail. “Stories are being revealed,” Kirsch told CNN Business.
U.S. electric car companies aren’t the only ones to see their valuations drop. Chinese electric vehicle startups have also been hit. Nio shares are down 49% this year, X-Peng is down 52%, BYD is down 17%. Even the world’s most valuable automaker, Tesla, has not been left out; this year, its stocks have decreased by 27%.
Kirsch sees the falling stock prices of companies that want to compete with Tesla as evidence of how difficult it is to turn startups that inspire investors with their stories into businesses that prove themselves on paper with revenue and profits.
“Some of these companies are at risk to some degree,” Kirsch said. “There’s a saying, when the tide goes out, you see who isn’t wearing a bathing suit.”