In Class Book

For a certain sector of the economy the past week has been electric.

Item 1: Tesla (TSLA) CEO Elon Musk polls his Twitter followers if he should sell his Tesla shares. They say yes. TSLA tanks on the news and Musk loses $50 billion. Then Musk sells 5.2 million shares or $5.8 billion of stock (as of Friday.) Tesla shares rally. Musk is still the richest man in the world.

Item 2: On Tuesday, electric truck maker Rivian goes public. Its stock soars 29{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in the biggest IPO since the company formerly known as Facebook debuted in 2012. Rivian’s (RIVN) market value of $100 billion is bigger than Ford’s or GM’s.

Item 3: Also on Tuesday, Hertz, which had its IPO this week, confirms it is going to buy 100,000 Teslas, highlighted in an ad campaign, “Let’s Go!” featuring Tom Brady.

So the week might sound kind of bananas but in this quarter of the business universe, that’s actually pretty much SOP. It’s also the case that EVs, Elon and all things electric aren’t fringe anymore. They’re a massive, rapidly growing and increasingly core part of our world. This week’s New Yorker cover pretty much sums it up — Don Quixote looking to tilt a cluster of giant wind turbines. You don’t want to fight this.

Welcome then to the new Economy Electric.

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What do I mean by that? Simply that there is a revolution happening right now that’s transforming all businesses, which use engines that burn fossil fuel, and forcing them over to electric power. It’s begun with cars, (though we’re still early days at least in the U.S.) “EV sales have been skyrocketing over the last couple years,” says Ram Chandrasekaran, an EV analyst at Wood Mackenzie.

“In the first three quarters, we’ve already exceeded all of 2020 sales. It’s been an exceptionally strong year. 70{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} are coming from China and Europe. In China and Europe they’re firmly in the mainstream now. In the U.S., EV sales have been lagging compared to China and Europe around 6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} or so,” he said. That will change.

And there’s everything else. Like motorcycles, boats, and some day planes and all forms of transportation. And then there’s generators, farm tractors and so on. It is a massive shift and it’s coming right now.

At this point — Rivian notwithstanding — it’s mostly, one man, one company and one stock: Elon Musk and Tesla. So much has been written about Musk and Tesla, I’ll just boil it down to this: Musk is a visionary. And Tesla is groundbreaking. Those two statements are unassailable and are immutable regardless of what Musk does or what happens to the company, car or stock going forward.

Certainly the market has more than validated this. Beyond the fact that Tesla has cumulatively sold more than 2 million cars, consider that Musk, the personification of the electric revolution, is worth some $294 billion, (way richer than Jeff Bezos — $200 billion), and up $124 billion this year. And of course Musk’s vision and strategy encompass much more than just Tesla, which is an element of an electric ecosystem he’s building including SolarCity and a distributed power grid.

Tesla’s trillion dollar market capitalization — the most valuable car company on the planet — is of course tough to justify. “I don’t want to make any serious comment about Tesla’s market cap — it being higher than the next seven or eight automakers combined is somewhat comical,” says Chandrasekaran. But he adds: “That’s how things are sometimes.” (It’s ironic that Tesla is on this kind of trajectory, while GE, a company rooted in the history of humanity’s taming of electricity, is now a shadow of its former self and being broken up.)

But Tesla won’t be the only (dare I say) blue chip e-company forever. In fact one of the most serious parlor games on Wall Street right now is picking which other e-businesses will become dominant tomorrow. I want to go through some of these companies, but before that, some brief history about, yes, electricity.

The word “electric” comes from the Latin word electricus (“of amber” or “like amber,” also the elektron, the Greek word for “amber”) because one way we humans first became aware of electricity was when amber is rubbed it becomes magnetic.

Yes, Ben Franklin was an early pioneer. Some version of the kite and the key story may in fact be true. But no, Franklin didn’t “invent” electricity, (any more than Columbus “discovered” the new world.) Franklin did help harness it and maybe coined the phrase “electric battery.”

Other giants in the history of electricity include the likes of Thomas Edison, (who among many other things, was a co-founder of the aforementioned General Electric company.) His rivalry with George Westinghouse (AC versus DC) makes for an excellent movie, “The Current War,” starring Benedict Cumberbatch as Edison (I know, really?) There’s also of course the amazing Nikola Tesla, the namesake of two EV makers, which I wrote about here.

Then there’s British physicist Michael Faraday, who in 1850 was asked by William Gladstone, then the Chancellor of the Exchequer, what the practical value of electricity was. “One day sir, you may tax it,” was Faraday’s retort.

A quick word about Industrial Revolutions. The first one, from 1760 to 1820, wasn’t about electricity at all and was in fact driven by localized steam engines, textile looms, the cotton gin and other simply powered machines. The Second Industrial Revolution however, from 1870 to 1914, is when electrification began which led to the creation of giant steel, chemical businesses and scores of other industries as well.

Of course electricity was used for cars early on and for rails and buses right through, but the powerful oil and gas industries promoted internal combustion engines at the expense of electrics from the early 20th century right up to, well now. (“Who Killed the Electric Car” is just a recent example of many such stories.)

But now that’s all changing. Why? Awareness of global warming for one. Erika Myers, a senior EV analyst at the World Resources Institute, thinks electrifying the economy is “our best chance” to address climate change. “I would not say EVs are a silver bullet,” she adds. “There needs to be a lot of strategies for transportation. Transport is 25{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of global carbon dioxide emissions and fossil fuels have provided 95{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of transportation fuels up to this point.”

“There’s not enough biofuels — you can’t do enough sequestration to get there,” says Saul Griffith, co-founder and chief scientist at Rewiring America, as well as the author of “Electrify: An Optimist’s Playbook for Our Clean Energy Future.” “80{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} or 90{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of our energy system has to go electric. People say hydrogen but hydrogen starts with green electricity.”

Remember too that technology is driving down the cost of going electric.

Now back to the new electric companies. First, because the first wave of this third revolution has been cars, the category is usually referred to as EVs, (electric vehicles). But when you look up, say a list of best EV stocks, (like this one and this one), they invariably include battery makers and other suppliers as well.

There are a handful of EV ETFs, such as this one and this one that focuses on China plays, but most are still small and not really pure plays, i.e. they hold, say, diversified chipmakers that produce chips for EVs, but also have major other lines of business as well.

Here then are a few categories:

CARS AND TRUCKS

“Even Bloomberg New Energy Finance, which I’d hardly call radical, estimates in 2025, 2026 the electric vehicle will cost less in the showroom than an internal combustion engine,” says Saul Griffith. “When electric vehicles are more cost efficient in 2025 — it has flipped in China, in Norway — then it’s game over.”

There are EV makers selling right now, Tesla but also Lucid and Rivian. (BTW, Musk’s arch rival Jeff Bezos’s company Amazon is a large investor in Rivian.) In China you have NIO, (a very popular ticker here at Yahoo Finance), BYD (which Charlie Munger has invested in), Xpeng and Li. Then there are those that shall we say, are on more extended timelines like Fisker (FSR), Canoo (GOEV), Faraday Future (FFIE), Lordstown (RIDE) and Xos (XOS).

Obviously Rivian has been the talk of the town, which as my colleague Rick Newman notes, is a bit bizarro, “Electric-vehicle startup Rivian [with its giant market cap] has never sold a vehicle until this year. GM sells around 7 million vehicles per year; Ford, 4 million.”

True that Rick. But sometimes Mr. Market likes bizarro.

Another interesting point about Rivian to consider. DataTrek suggests that: “Rivian is the first legitimate competition Tesla has ever had in terms of institutional investor interest. That could pull capital out of TSLA, and therefore the S&P 500.”

Of course Elon couldn’t resist a poke Tweet at Rivian: 

Some are saying that now is the time to sell Tesla, as in “Own Tesla Stock? Be Like Elon Musk and Sell” in the Wall Street Journal this week. Who knows, maybe this time the skeptics will be right. Ark Invests’ Cathie Wood is still a believer though, saying the recent dip in Tesla is, “is nothing but a blip,” on the way to her price target of $3,000.

MOTORCYCLES

What makes people love motorcycles; the noise, the vibration, the smell is exactly what electric motorcycles obviate. And of course, any self-respecting Harley rider would scoff at all that. (My colleague Pras Subramanian, who covers EVs and all things electric, details all in this primer on e-bikes.) In spite of or perhaps because of all that, I think e-motorcycles are going to be a home run. Here you have newbies like Zero Motorcycles and NIU (e-scooters) as well as Volcon (VLCN), a manufacturer of electric motorcycles, and ATVs based near Austin, “an area that is poised to become the electric vehicle capital of the world.”

“With our current products, we found out 50{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of people ordering directly from us hadn’t ridden a motorcycle before,” says CEO Jordan Davis. “Our bike doesn’t require a clutch; it doesn’t require a shifting of gears. You don’t need to be mechanically inclined — there’s no spark plug, no oil changes. Maintenance on the bike is very, very low.”

Wouldn’t you kill to be a fly on the wall at Harley-Davidson, which has an electric motorcycle called LiveWire, as they discuss all this?

BATTERY MAKERS

I get out of my depth pretty quickly here, so I’ll keep it short. This article is a great starting point. Bottom line: Most of the know-how and manufacturing is in China, which brings global politics into play as outlined in this New York Times guest essay by Steve LeVine, editor of The Electric, a publication focused on batteries and electric vehicles. His most recent book is “The Powerhouse: America, China and the Great Battery War.” (I’m telling you there is so much here.)

SPACS

Unlike the other categories here, SPACs are an investment vehicle through which many e-companies choose to go public. Kristi Marvin, CEO and founder of SPACInsider.com and her team put together some numbers. Simply put EVs are big on SPACs. Since the beginning of 2020, when SPACs began to boom, 23 EV SPACs have been announced or completed including SPACs for Lordstown, Fisker, Lucid and Nikola, with a total enterprise value today of $67 billion, the second biggest SPAC category after tech.

PLANES AND HELICOPTERS

Even more speculative here. “Right now batteries are just too heavy to be used successfully in commercial flights,” says Erika Myers. (There’s also the question of whether anyone would fly in an electric plane, nevermind helicopter?) Still this too could be coming. There are numerous commercial projects underway, including those by Airbus, Cessna and EasyJet, as well as startups like Wright Electric (“All short flights can be zero-emissions starting in 2026.”) And check out the Pipistrel Velis Electro, plane of the year. As for choppers, going back to 1917 apparently there was an electrically-powered tethered job. (Yikes.) Sikorsky’s been working on the Firefly for a decade. Here too there are myriad projects that include hybrids and unmanned models. (That sounds better to me!)

OTHER

Want an electric tractor? Check out here. And here. Electric RV? Coming here and here. Electric boat? Got a whole fleet of ‘em. Electric generators? Amazon has all kinds. And I could keep going here into any and all gas or diesel, etc. powered engines business again.

And that would include GM and Ford, right? It’s kind of funny to put these two legacy giants in an “other” category, but yes, they too could be major EV companies… soon. In fact they better be. There are signs. Ford stock has quadrupled (to $19) since its COVID-19 low in March 2020 based to a large degree over optimism of achieving this transformation. (GM has tripled to $60 over the same time period.) For Ford, developing an electric F-150 is critical. “To take something so central to Ford’s entire brand image and make an electric version and price it at a price point that’s extremely competitive, I think is a great achievement and is going to make a huge impact in the coming years,” says Ram Chandrasekaran.

And then there are the others. Ferrari is going electric, at $320K a pop. (What’s a Ferrari without the VROOM, I wonder…) And so is the aforementioned Hertz. Hertz CEO and former Ford CEO Mark Fields telling Yahoo Finance’s Brian Sozzi: “We are excited about the Tesla relationship. It’s all wrapped around our strategy to lead the adoption of electric vehicles.”

Everybody’s in on the act because, well, you want to be in on the act, but also because you do it or you die.

Sound like an investment slam dunk? Not exactly. I’m sure there are fortunes to be had for VCs and for ordinary people as well, (like buying TSLA two years ago when it was $70 — it’s now $1,045.) But please, please, please caveat emptor here. There’s all kinds of risk. For instance, hydrogen-powered vehicles for instance might make a quantum leap and win out over EVs.

I’m also reminded of something Warren Buffett said back in 1999: “There’s a lot of difference between making money and spotting a wonderful industry.” Here’s how Buffett expounded:

“You know, the two most important industries in the first half of this century in the United States — in the world, probably — were the auto industry and the airplane industry. Here you had these two discoveries, both in the first decade — essentially in the first decade — of the century. And if you’d foreseen, in 1905 or thereabouts, what the auto would do to the world, let alone this country, or what the airplane would do, you might have thought that it was a great way to get rich. But very, very few people got rich by being — by riding the back of that auto industry. And probably even fewer got rich by participating in the airline industry over that time. I mean, millions of people are flying around every day. But the number of people who’ve made money carrying them around is very limited. And the capital has been lost in that business, the bankruptcies. It’s been a terrible business. It’s been a marvelous industry. So you do not want to necessarily equate the prospects of growth for an industry with the prospects for growth in your own net worth by participating in it.”

Meaning in some cases it might be great to be a customer, i.e., to own an EV, but it might not be as great to an EV shareholder. To wit: Living in the electric economy might be more rewarding and enjoyable than investing in it.

Wikipedia has a “List of defunct automobile manufacturers of the United States” with some 1,500 entries. While some EV makers will succeed wildly, no doubt others will be added to this list.

This article was featured in a Saturday edition of the Morning Brief on November 13, 2021. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer

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