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DRIV: The Electric Vehicle Bubble Is Bursting

Harrison Schwartz profile picture
Harrison Schwartz


  • Electric vehicles are the future, but that does not make EV stocks good investments.
  • EV stocks have risen largely due to massive "hobby investing" growth which has fueled an alarming increase in those borrowing money to buy stocks.
  • While the surge in new entrants is good, it has pushed many electric vehicle (and related) stocks up to unreasonable levels.
  • As we reach the one-year mark from the beginning of 'the bubble,' many may soon look to take profits on major winners for tax purposes.
  • ETFs with high exposure to the "EV Bubble" such as Global X's DRIV may be a great short opportunity as the speculative rally becomes a bust.

One of the major market forces in 2020 was the ascendance of the electric vehicle industry. While many EV stocks had a strong performance record for years before 2020, last year saw incredible gains in the industry. Record gains were seen not only in Tesla (TSLA) but also in its smaller new competitors such as Nio (NIO), Nikola (NKLA), and XPeng (XPEV). While many are still rising, it seems the EV market passed its peak momentum around November 2020. See below:

ChartData by YCharts

Without a doubt, the strong performance of electric vehicle stocks is slowing. Companies such as Nikola have been shown to have made misleading statements, giving many investors a sense that firms are making excessive efforts to capitalize on EV's popularity. While my overall bearish view on EV stocks has yet to come to fruition, I did warn investors about Nikola in July when it was trading at its peak.

Most electric vehicle stocks have slowed dramatically following Nikola's bust and TSLA's ascendence to the S&P 500. While I believe that electric vehicles will become increasingly popular, EV equities seem to be universally overvalued - making them potentially deadly investments today.

Last year's financial market was awash with liquidity due to the substantial rise in personal savings rates (due to reduced spending and increased fiscal stimulus). Even more, many individuals had extra time which encouraged some to pick up trading and investing as a hobby. There was record retail brokerage account growth, however many of these new traders do not know basic investing knowledge. This is demonstrated by FINRA's study that showed new investors, on average, could only answer 1.4 out of 5 basic investment knowledge questions correctly.

While it is good that new entrants have joined the investing community, this situation has created extreme valuation imbalances. Importantly, Tesla and

This article was written by

Harrison Schwartz profile picture
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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