Investing in Tesla and the EV market.

JulieRight

Hi, I made a lot of threads on investing here with a lot of helpful advice, so thanks! This will probably be my last thread on investing... It's about the EV market investments like Tesla etc.

I did some reading and here's what I found... Experienced investors advice is welcome! thanks...

EV stocks are down past few months only due to temporary production / supply issues. Does this mean they are a good med/long investment?
- EV market is new and a lot of growth potential.
- Gas cars are being phased out, increasing demand for EV vehicles.
- EV cars comply with environmental policy and Biden US clean energy objective.
 - 0% interest rate by FED until 2024.
- Short term covid restrictions limiting orders / supply.
- Plug power? 
- Charging station stocks e.g. Blink

 So when covid gets better in the summer and people go out and buy cars, do you think these EV stocks will grow a lot as it seems like the demand is there but supply issues affecting stock price in the short term...

So I was thinking about building a diversified portfolio in EV/ stocks.

What is the case to NOT invest in the EV market?? thanks a lot.

JohnWinder

Firstly, despite your insightful list, it’s unlikely (no, make that impossible) that you’ve considered or are even aware of all the influences that will determine EV stocks’ returns for even as short a period as one year.

Secondly, there’s unavoidable market risk inherent in owning stocks; the risk every stock faces from regulatory changes, interest rate changes, pandemics etc. In addition, every stock carries its own individual risks related to it alone, eg how good the CEO is, what the competitors are doing, its borrowing costs etc. 

One can minimise the effects of those latter risks by owning only a tiny bit of each stock, and owning a bit of all of them leaving you with just market risk effectively. So why choose to take on market risk AND idiosyncratic risk when the latter can be largely eliminated? Well, the answer is because you’re happy to gamble on winning compared to the whole market, or losing. How much of a gambler is what it comes down to.

The other element to consider is how you might be over-paying for individual shares unless you diversify widely. Anyone who buys the whole market can afford for any one share to crash, as it will have very little impact; thus they are taking very little risk with any one share, and will thus be happy to pay a bit more for it than if it was the only share they were buying and risking all their money with that. So, effectively, since the average investor can buy the whole market, one is forced to pay more than the average person is comfortable with when one buys only a small number of individual shares, compared to the person who owns them all. Essentially, you over-pay.

maxsteam

Tesla is a hugely expensive stock - the price is about ten times the industry average. It's run by someone who has been convicted of manipulating his company's share price and who shows no signs of changing his ways. I am sure that there are opportunities in the electric vehicle sector but Tesla is on my list of stocks to avoid.

While it's obvious that electric vehicles are going to become normal, it's not going to happen in the short term. I will be changing my car shortly but an electric vehicle is not an option. It's not within my budget and there's nowhere to plug it in - I regularly park a few minutes walk from my front door.

bostonerimus

Again Julie, step away from the keyboard! Unless you really like rollercoasters and can afford to lose large amounts of money do not invest in such speculative sectors. 

benbay001

Whats important to remember is that you are not the first person to see EV vehicles as the future. Everyone is aware of it, from the hedgefund managers to the Wall Street Bets guys.

What that means is that quite alot of dumb money has entered the arena with no regard for the underlying fundamentals of the companies.

Ontop of that, you need to ask, who is really going to win the EV race? Tesla are doing well right now because they were the first. Here is a list of all the car manufacturers that have existed https://en.wikipedia.org/wiki/List_of_automobile_manufacturers 

Do you see how many arent around any longer? Its a super competitive market with narrow profit margins and some massive companies who are going to fight tooth and nail to protect their market share (Toyota, Volkswagen?) 

If i said to you which company is most likely to be around in 10 years, would you say Tesla or Tesco?

I did some simple maths in another thread working out just how big Tesla need to grow in 10 years time to make a good return on todays share price and came to the conclusion they would need 30% of total worldwide car sales in 2030.

If youre going to pick individual shares, you really need to get some sort of understanding of valuation fundamentals.

dunstonh

EV stocks are down past few months only due to temporary production / supply issues. Does this mean they are a good med/long investment?

Certainly not for 4 months.  Long term is unknown.  Hydrogen may end up being the winner.      Is Tesla a car company or a battery company?    Is it disruptive tech that is at risk of being disrupted itself?

Betamax was better than VHS.  Yahoo was before Google.    

Tech is highly volatile because the very thing that makes it have good potential means someone else can do the same to them.  Tech is also subject to fashion.   If you become unfashionable in the tech world it can be the death of the company.

- Gas cars are being phased out, increasing demand for EV vehicles.
- EV cars comply with environmental policy and Biden US clean energy objective.

Are you American?  This site is for UK consumers and responses are based on the UK views on investing, which are often different to the US (taxation, marketplace and general views).

[Deleted User]

JohnWinder said:

The other element to consider is how you might be over-paying for individual shares unless you diversify widely. Anyone who buys the whole market can afford for any one share to crash, as it will have very little impact; thus they are taking very little risk with any one share, and will thus be happy to pay a bit more for it than if it was the only share they were buying and risking all their money with that. So, effectively, since the average investor can buy the whole market, one is forced to pay more than the average person is comfortable with when one buys only a small number of individual shares, compared to the person who owns them all. Essentially, you over-pay.

Not clear what you mean by this..

JohnWinder

I think it starts with the notion that there is no reward for taking unnecessary risk. Which is to say, businesses need to reward investors for taking the risk of lending them money or buying equity; if there’s no reward the investors won’t take the risk, so businesses are forced to pay investors. But how could they be forced to pay someone who took no risk, as the investor is sure to get their money back?

If that’s a mind twister, come at it from the other direction: provide a reason why anyone (funding their business via investors) should pay someone else (an investor) if that investor doesn’t take any risk? I don’t think we can envisage such a situation.

Now read on:

Suppose you are at an auction and people are bidding on three items. Here is a key point: people are only allowed to make one bid at the auction, and there will only be one auction of this kind, or anything like it, ever. Assume that the bidders are rational, there is no sentimental value, they are traders who expect to sell the item again at some point, and they are in it to make money. But this is a once-in-a-lifetime maneuver, they aren't going to auctions like this all the time.

Item X is a transparent plastic box, essentially worthless in itself, but containing a $100,000 in guaranteed-genuine $100 bills.
Items Y and Z are opaque boxes. They come with a legal document that says that one of them contains $200,000, but not the other, and nobody knows which.

I hope we can agree that the true value of box X is $100,000.00, and that if bidders are calm and rational, the auction price will be very slightly under $100,000.00 (minus whatever razor-thin difference is needed to motivate people for their time and trouble). Maybe people demand an 0.1% profit even though they are taking no risk, so the final auction price might be $99,900.

What about box Y? Your mathematical expectation is exactly $100,000.00, but it's not a sure thing. You aren't in it for the thrill, and you don't have any inside information or hunches that let you guess which box contains the $200,000. I don't think you want to bid $100,000 or anything close to it. A 50% chance at $200,000.00 isn't worth $100,000.00 if you only get to do it once in your life. You want to be compensated for taking the risk. That means that, sure, you might take a shot at it and put in a bid of $90,000, because your mathematically expected return is $100,000 or +11.1% over your bid. However, as the bidding gets higher and higher, you and everyone else will drop out long before the price reaches $100,000, because the bidders demand to be compensated for their risk. Depending on what other opportunities are available elsewhere, you might actually be the high bidder at $90,000. You might actually get a box with a 50% chance of $200,000 in it for $90,000. It's possible.

The reason this is true is that I've set up a situation where people were forced to take the risk, and demanded to be compensated for it.

'Now, consider a new auction with new rules: you're allowed to make as many bids as you like. Unfortunately, all personally have with you is your life savings of $100,000 with you, while your competitors have unlimited money. (That, by the way, is one thing about our hypothetical system that is quite a lot like the real world).

As before, the true value of box X is $100,000 and the bidding will almost reach $100,000, maybe $99,900.

As before, the mathematically expected value of box Y is $100,000, but this time, there is a difference. All of your competitors are able to diversify away their risk completely by bidding on both box Y and box Z. They are guaranteed to get $200,000.00, sure thing, by doing this. What is going to happen? Obviously, the price on each box will get bid up to almost exactly $100,000, maybe $99,900. For the bidders who can afford to diversify, there is no longer any risk.

But, you are sitting there with only $100,000, unable to bid on both boxes Y and Z. For you, then, the situation is the same as in the first auction. If, based on whatever personal equation you use for pricing risk, you were only willing to bid $90,000 then, you should only be willing to bid $90,000 now, because it is exactly the same situation for you as it was before.

So, there you are, sitting there, and you say, "Hey! I am taking more risk than everyone else, I deserve to be compensated for that risk! I am bidding $90,000 and I expect everyone else to drop out of the bidding, it's only fair!"

And everyone else is going to say "Sorry, that box may only be worth $90,000 to you, but it is worth $100,000 to me and I'm willing to bid up to $99,900. Tough."

So, in theory, equilibrium, rational investors, blah blah, most people in the stock market are diversifying, and are therefore taking less risk than people who aren't, and are therefore willing to pay more than people who aren't. And, the stock market being an auction, the prices rise to what most people are willing to pay. And in the mass that represents the prices that reflect the lower risk experienced by investors who can and do diversify.’

https://www.bogleheads.org/forum/viewtopic.php?t=258145

Thrugelmir

Another thread?  

[Deleted User]

That is quite an entertaining diversion, John, but the conclusion is incorrect.  

The value of the box is unchanged, regardless of the bidder.

By the same token, whether players in a casino place bets all over the roulette table or on one number the expectation for the house is the same - 36/37. 

I'm still not clear which strategy it is that you think leads to paying over the odds but really, there isn't one. Diversification doesn't change the arithmetic.  

Linton

ZingPowZing said:

That is quite an entertaining diversion, John, but the conclusion is incorrect.  

The value of the box is unchanged, regardless of the bidder.

By the same token, whether players in a casino place bets all over the roulette table or on one number the expectation for the house is the same - 36/37. 

I'm still not clear which strategy it is that you think leads to paying over the odds but really, there isn't one. Diversification doesn't change the arithmetic.  

mmm - so you would advise the OP to put all her money into Tesla shares on the grounds that diversifying into anything else doesn't change the arithmentic?