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Ron Arnott gives a warning about ‘Big Market Delusion’ in Electric Vehicles

ByAdam Kowalski

Mar 16, 2021

The craziness coming from electric vehicles indicates ‘big market delusion,’ which has trapped shareholders in a hole from the past. PalmPilot lost its war during the smartphone revolution, and that sends a warning that not all of them will win the EV race in the end.

In a statement, Arnott and Lillian Wu said that EV companies are priced as if they would be winners. EV companies are just competitors, so they cannot all rule the dominant market share in the future. Electric vehicle stock has been valued more than the traditional automakers; however, they have not recorded a huge value, just 2% in the last three years.

Despite the criticisms posed on electric vehicles, there has been a lucrative wager beloved, especially by retail and tech evangelists like Cathie Wood. Electric vehicles would be of great importance, especially in fighting against climate change, and that is where the majority will decide to purchase electric vehicles. Tesla Inc. is the automaker leading the mania following U.S President Joe Biden‘s strong policy of switching fully to clean energy. The rally seems to have taken a break following the surging car prices, making the investors think again concerning the most expensive stock market parts.

Many have stuck to $157 billion strategies, but RA has come in as a pioneer in a smart beta where one invests in stock based on the company’s quantifiable characteristics. Newport Beach, a Californian- company, relies on long-term academic research as its best approach on EVs. The firm has always given red signals following frothy valuation in the past years.

The electric Vehicles sector is the latest on the market of automotive. Tesla traded for about 28 times last year on its sales compared to about 1.1 times for traditional auto stocks. Tesla Inc. had a 15% share in the EV market, and its revenues are way too small compared to other automakers like Volkswagen AG and Toyota Motor Corp. If Elon Musk’s company, Tesla, turns out to be prescient, it means that its competitors would lose market shares, therefore making the gains made by the industry had to substantiate.    

RA gives an example of a transition in the airline industry where travel was revolutionized but failed to provide a wealth bonanza for its stakeholders. During the crisis, weak firms would shut down their work, whereas new firms would emerge to drive down proceeds during good times. So, the auto sector is not far from the airline industry because it focuses on competition and gaining more capital. As a result, the equity of its valuations gets depressed.

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