Tesla and 15 other electric vehicle stocks are worth almost as much as traditional carmakers

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Electric vehicle manufacturers such as Tesla and Nio account for almost half of the value of automakers. Bullish electric vehicle investors need to believe three things.

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and other electric vehicle makers account for nearly half of the value of auto manufacturers’ inventories. Does this make sense?

On Monday, Bernstein analyst Toni Sacconaghi asked this question. He is a


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(ticker: TSLA) bear – Sell rating stock with a price target of $ 300 – mainly because he thinks the stock is expensive. Yet electric vehicles can be worth half the industry if investors buy into three ideas.

Today, 16 electric vehicle makers, including Tesla and Rivian, still public, are worth a total of $ 1.14 trillion. Tesla accounts for 74% of the total value of electric vehicles. Four of the 10 most valuable automakers are electric vehicle companies including: Tesla, Rivian,


BYD

(1211.Hong Kong), and


NIO

(NIO).

As for conventional vehicle manufacturers, more than 50 automakers are worth a total of $ 1.42 trillion. The most valued traditional car manufacturers are:


Toyota engine

(TM),


Volkswagen

(VOW3.Germany),


Daimler

(DAI.Germany), and


General Motors

(GM).

Traditional business sales still dominate unit volume, selling around 99% of the world’s cars – 97% of them are gasoline and 2% are electric vehicles. EV pure-plays sell the remaining 1% worldwide.

“The idea, of course, is that outright electric vehicle vendors will eventually dominate the automotive world,” Sacconaghi wrote in a report Monday.

This is the first thing investors have to believe in to justify EV valuations. Sacconaghi points out that in 2014, pure electric vehicle companies accounted for 14% of electric car sales. It is 28% today. The market share of pure play EV companies is increasing.

This is the second conviction required to stay bullish in equities of electric vehicle manufacturers – this market share will continue to improve. “We suspect that the market thinks … that traditional OEMs will not be able to offer competitive electric vehicle offerings in the future,” adds the analyst in his report. OEM is the abbreviation for original equipment manufacturer, industry jargon for automobile manufacturer.

The last thing investors have to believe is that electric vehicles will be more profitable, per car, than conventional vehicles. Electric vehicle companies tend to sell directly, which can improve profitability. Manufacturers of electric vehicles are also leaders in the sale of additional subscription-based services. Tesla’s Full Self-Driving Capability, or FSD, is probably the best example. Tesla sells the higher levels of its autonomous driving software as a monthly subscription or for $ 10,000.

The mix of volume growth and earnings driven by premium products could justify the valuations, but Sacconaghi doesn’t believe it. “Our assertion is that the auto industry is an increasingly global and hyper-competitive industry and we believe that excess profits and technological innovation will likely compete with each other over time.”

His take on the industry is one of the reasons he calls Tesla’s valuation “too rich”.

Time will tell who is right. Sacconaghi’s target price still implies that Tesla should be the world’s most valuable automaker, but not two to three times Toyota’s value.

Tesla stock has seen a tear of late, adding 34% in the past three months as investors became more optimistic about expected third-quarter earnings on Wednesday night. Stocks gained another 2.1% on Monday. The


S&P 500

and


Dow Jones Industrial Average

are down 0.1% and 0.3%, respectively, on Monday.

Write to Al Root at allen.root@dowjones.com


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