If you’re not already aware of the electric vehicle (EV) industry, you should be. In the next decade, EVs will go from niche products to eventually overtaking gas-powered vehicles as the primary mode of transportation. In 2020, EV stocks have been one of the strongest-performing industries parts of the market. Year-to-date, the KraneShares Electric Vehicle and Mobility ETF (KARS) is up 58%, while the S&P 500 is up 13.6%…
However, in the short-term, many EV stocks have become overvalued by traditional valuation metrics. Some publicly traded EV companies have A handful has similar market capitalizations that exceed those of legacy auto manufacturers, yet they are only selling a fraction of the cars that traditional automakers are selling.
Further, they have many difficult hurdles to overcome to justify their valuations, such as scaling production while maintaining quality, continually designing products that appeal to customers, and erosion of pricing power, as numerous EV companies enter the market over the next few years.
Lithium-Ion Batteries
According to the IEA, 2.2 million EVs were sold in 2019, while 77.5 million cars were sold in total. The IEA estimates that by the year 2050, more than half of all passenger vehicles sold will be EVs.
An option for investors that want to profit from this massive growth in the EV industry, but are scared of these current high valuations, is to invest in companies that are part of the battery supply chain, since all EVs are dependent on lithium-ion batteries.
Another reason to expect demand for lithium-ion batteries to increase over the next decade is that they are also used in portable electronics such as LCD displays, smartphones, tablets, laptops, and wearable devices. Overall, the global market for lithium-ion batteries was valued at $108.4 billion in 2019 and is
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